09.09.2017 – the List of foreign stock exchanges comes into force (the list approved by Regulation of the Cabinet of Ministers of Ukraine No. 675 dated 06.09.2017).
The matter of amendments
The List of Foreign Stock Exchanges has come into force which will allow exemption from taxation in Ukraine of the interests paid by the Ukrainian borrowers-non-residents under the loans and financial credits provided in 2017 and 2018.
Whom it will affect
The Ukrainian business, particularly, agrarian and industrial holdings intending to raise funds from the international capital markets.
The List of Foreign Stock Exchanges adopted by the government includes Warsaw Stock Exchange and London Stock Exchange, as well as 19 more stock exchanges, mostly in Europe, Asia and the USA. The approval by the government of the List of Foreign Stock Exchanges allows application of a mechanism for exemption from taxation of the interests paid by the Ukrainian companies under the loans and financial credits to non-residents that, in their turn, raise funds from the international markets of capital, placing debt securities.
How to prepare / mechanism of the amendments introduction
Tax Code of Ukraine immediately specifies the exemption from taxation of the interests for the above operations by a tax from non-residents’ incomes (or as it is sometimes called, by a withholding tax). The application of this preferential taxation is not bound by international conventions regarding the avoidance of double taxation, which eliminates the need for a relevant non-resident to confirm the status of a beneficiary owner of income.
To apply the preferential taxation mode, it is necessary to adhere to the following conditions:
a) a non-resident must attract the funds he/she provided under the loan or finance credit by placing foreign debt securities at the foreign stock exchange included into the list approved by the Cabinet of Ministers Ukraine;
b) a non-resident must attract the funds he/she provided under the loan or a finance credit with the purpose of provision (directly or indirectly) of a loan or a finance credit to the resident;
c) a non-resident whom the interests are paid to, and/or a person authorized by him/her (if the interests are paid through this person) are not the residents of jurisdiction included into the list of states (territories) approved by the Cabinet of Ministers of Ukraine in compliance with subcl.188.8.131.52. of subcl.39.2.1 of cl.39.1 of Article 39 of this Code as of the date of placement of foreign debt securities by the non-resident.
Please note that mode of the exemption from taxation concerns the interests to be paid under the loans and credits provided for the period from 01/01/2017 to 31/12/2018. The rate of the withholding tax in amount of 5% is applied to the interests under the loans and credits provided after the expiry of this period.