On 15 February 2018, the Ukrainian State Fiscal Service (SFS) published a Guidance Letter (the "Letter"), which clarifies the tax treatment of dividends paid by a Ukrainian resident to a resident of Cyprus based on the Double Tax Treaty (DTT) between the two countries of 2012.
As per the SFS, dividends paid by a Ukrainian resident to a non-resident or its authorized representative are subject to withholding tax in Ukraine at the rate of 15%, unless otherwise provided by an effective Double Tax Treaty.
The Tax Code of Ukraine provides that in the case of conflict between the provisions of tax treaties and the domestic tax legislation, the provisions of the DTT prevail. The Tax Code further provides a tax agent has the right to independently apply the reduced rate under the DTT upon the distribution of dividends to the non-resident, provided that such non-resident is the beneficial owner of the income and is a resident of the state that has concluded an effective tax treaty with Ukraine.
Based on article 10 of the DTT dividends paid by a company which is a resident of a contracting state to a resident of the other contracting state may be taxed in that other state. However, such dividends may also be taxed in the contracting state of which the company paying the dividends is a resident and according to the laws of that state, but if the beneficial owner of the dividends is a resident of the other contracting state, the tax so charged may not exceed:
– 5% of the gross amount of the dividends if the beneficial owner holds at least 20% of the capital of the company paying the dividends or has invested in the acquisition of the shares or other rights of the company equivalent of at least EUR 100,000; and
– 15% of the gross amount of the dividends in all other cases.