Salans is a full service international law firm with offices in Almaty, Baku, Barcelona, Beijing, Berlin, Bratislava, Bucharest, Budapest, Frankfurt, Istanbul, Kyiv, London, Madrid, Moscow, New York, Paris, Prague, Shanghai, St. Petersburg and Warsaw.

Contents

  1. Parliament approves the Ukrainian State Budget for 2009
  2. Exemption from Taxation for Dividends in Ukraine under Double Tax Treaty with the Netherlands
  3. Ukrainian Parliament Ratifies Convention on Mutual Administrative Assistance in Tax Matters
  4. Ukrainian Parliament Fails to Denounce USSR-Cyprus Double Tax Treaty
  5. Taxation of Non-residents' Gains from the Sale of Shares Deriving their Value from Immovable Property

1.Parliament approves the Ukrainian State Budget for 2009

On 26 December 2008 the Verkhovna Rada passed the law On the Ukrainian State Budget for 2009 (the "Law"). The following provisions of the Law are of particular note:

  • From 1 January 2009 the official 'cost of living' will remain UAH 669. As a result, from 1 January 2009, the effective payroll cap figure will be UAH 10,035.
  • The minimum wage from 1 January 2009 will be UAH 605 (the same as in December 2008), from 1 April 2009 – UAH 625, from 1 July 2009 – UAH 630, from 1 October 2009 – UAH 650 and from 1 December 2009 – UAH 669 per month.
  • In 2009 the applicable land tax rates for land in inhabited areas on which no valuation has been made will increase by a multiple of 3.1.
  • In 2009 the pension fund duty for the purchase of foreign currency will be 0.2%.
  • In 2009 any granting of tax deferrals to taxpayers will be prohibited.

2. Exemption from Taxation for Dividends in Ukraine under Double Tax Treaty with the Netherlands

In letter No.22302/7/12-0117 dated 31.10.2008 the State Tax Administration of Ukraine set out its position regarding the exemption from Ukrainian taxation of dividends payable to Dutch resident companies under the Ukraine-Netherlands Double Tax Treaty.

In accordance with this treaty, dividends will be exempt from taxation in Ukraine provided that: (і) a Dutch resident company directly owns at least 50% of the charter capital of the Ukrainian company paying the dividends, and (іі) the Dutch resident company has invested at least USD 300,000 into the charter capital of the Ukrainian company paying the dividends.

The State Tax Administration points out that in order to qualify under this rule of the treaty, the Dutch resident company must contribute its USD 300,000 investment into the charter capital of the Ukrainian company in one stage. Additionally, such investment must be registered by the Dutch resident company in Ukraine.

We are of the view that the stated position of the State Tax Administration risks nonconformity with the provisions of the Ukraine-Netherlands Double Tax Treaty. Firstly, the treaty does not require the investment to be made in one stage. Secondly, the registration of foreign investments is a right, rather than an obligation for foreign investors. Thirdly, the way in which the aforementioned rule of the treaty is to apply must be settled by mutual agreement between the competent authorities of Ukraine and the Netherlands (to our knowledge no such agreement has been made).

3. Ukrainian Parliament Ratifies Convention on Mutual Administrative Assistance in Tax Matters

On 17 December 2008 the Verkhovna Rada ratified the Convention on Mutual Administrative Assistance in Tax Matters (the "Convention").

The Convention legislates for the provision of administrative assistance in tax matters by the contracting states as follows: exchange of information, including simultaneous tax audits and the participation in tax audits abroad; assistance in collecting taxes; and service of documents.

Currently the following states are parties to the Convention: Azerbaijan, Belgium, Denmark, Italy, Iceland, the Netherlands, Norway, Poland, the USA, Finland, France, Sweden and Canada. The member states of the Council of Europe and the member states of the Organization for Economic Cooperation and Development (OECD) may also sign up to the Convention, should they see fit.

The Convention will enter into force for Ukraine on the first day of the month after expiry of a three-month period from the date of the deposit of the Convention's instrument of ratification by Ukraine.

4. Ukrainian Parliament Fails to Denounce USSR-Cyprus Double Tax Treaty

For the second time this year, on 17 December 2008, the Verkhovna Rada tried to pass a decision denouncing the USSRCyprus Double Tax Treaty. However, this decision was not supported by the deputies.

By way of reminder, the Verkhovna Rada made its first unsuccessful attempt to denounce the USSR – Cyprus Double Tax Treaty in June 2008, after Cyprus and Ukraine had failed to reach agreement on a final draft of the new Ukraine-Cyprus Double Tax Treaty. Consequently, the USSRCyprus Double Tax Treaty, which is considered to be the most favourable Ukrainian tax treaty for taxpayers, remains effective.

5. Taxation of Non-residents' Gains from the Sale of Shares Deriving their Value from Immovable Property

The State Tax Administration of Ukraine in its letter No.22685/7/15-0157 dated 05.11.2008 set out its opinion as to the interpretation of the term "shares deriving their value or the greater part of their value directly or indirectly from immovable property" in the context of the taxation of gains derived by a Lithuanian resident from disposals of shares in Ukrainian companies under the Ukraine-Lithuania Double Tax Treaty.

According to this treaty, if a Lithuanian resident sells "shares deriving their value or the greater part of their value directly or indirectly from immovable property" situated in Ukraine, such sale will be subject to withholding tax at a rate of 15% in Ukraine.

In the light of this rule the State Tax Administration of Ukraine interprets the term "shares deriving their value or the greater part of their value directly or indirectly from immovable property" as shares issued by a Ukrainian joint stock company, whose charter capital is formed by 50% (or more) with immovable property situated in Ukraine.

It is worth mentioning that similar provisions regarding the taxation of disposals of shares can be found in most Ukrainian tax treaties. For this reason, the tax authorities' position regarding the term "shares deriving their value or the greater part of their value directly or indirectly from immovable property" is relevant for the interpretation of many other Ukrainian tax treaties.

Salans is ranked among the top 50 law firms in the world by PLC WhichLawyer?. In 2007 and 2008 Salans was shortlisted to win "The International Law Firm of the Year" from The Lawyer.

Salans is ranked as a top tier law firm in Ukraine and globally by the leading international legal directory Chambers Global.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.