On January 1, 2021, the Law of Ukraine of “On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine on Ensuring the Collection of Data and Information Necessary for Declaring Certain Objects of Taxation” dated December 17, 2020 № 1117 (hereinafter – Law № 1117) entered into force.
Law No. 1117, inter alia, amended paragraph 60 of subsection 10 of section XX of the Tax Code of Ukraine (hereinafter – the Code), according to which foreign companies with a representative office in Ukraine, registered at the Ministry of Economy shall within three months from 01.01.2021 submit to the tax authorities the documents for their registration (as foreign company) in accordance with the procedure established by paragraph 64.5 of Article 64 of the Tax Code.
This three-month period was postponed by the Order of the Ministry of Finance of Ukraine # 62 dated 08.02.12021 “On approval of Amendments to the Procedure for Registration of Payers of Taxes and Fees”, which entered into force on 19.03.2021 (hereinafter – Order # 62).
Under Order # 62, foreign companies are required to register with the tax authority within two months of the entry into force of the Order, i.e. by 19.05.2021.
For this, a foreign company shall submit to the tax authorities in the city / town where its Representative office in Ukraine is located the following documents:
- Application form 1-OPN (a new one, approved by Order № 62), and a cover letter.
- Attached to the application shall be copies of the following documents (with presentation of originals):
- an extract from the relevant national business register (trade, banking or other register, which records the company registration), legalized in the prescribed manner, unless otherwise provided by international treaties, the consent binding nature of which is provided by the Verkhovna Rada of Ukraine, and accompanied by a notarized translation into Ukrainian;
- a document containing the identification number (registration or accounting code) of the foreign company in the country of its registration, if the extract from the relevant business register does not contain information about such a number (code), accompanied by a notarized translation into Ukrainian;
- a document confirming the authorisation of the foreign company’s representative. If such a document is issued in the country of registration of the foreign company, it must be legalized in the prescribed manner, unless otherwise provided by international treaties approved by the Verkhovna Rada of Ukraine, and accompanied by a notarized translation into Ukrainian.
In this case the representative shall, along with the power of attorney to submit documents to the tax authority, have the right to represent the interests of the foreign company in Ukraine, and the data on such a representative shall be given in the application form in the columns “manager” and “chief accountant”. A copy of the passport, identification code and/or other document containing the information specified in the application form for the representative shall be submitted together with the power of attorney.
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a document confirming the accreditation (registration, legalization) of the representative office of a foreign company located in Ukraine (the Representative office).
In the case of establishment of a Representative office, the foreign company shall register itself with the tax authority within ten days after the registration in Ukraine of the Representative company at its registered address in Ukraine.
At the same time along with the registration of the foreign company shall be the registration of the Representative Office of the foreign company.
The Tax Code also provides for other grounds for compulsory registration of a foreign company with the Ukrainian tax authority, namely:
- acquisition of real estate or obtaining property rights to such assets in Ukraine;
- opening a bank account in Ukraine;
- acquisition of title to an investment asset in Ukraine from another foreign company which doesn’t have a representative office in Ukraine.
Consequences of non-compliance with the legal requirements regarding registration with the tax authorities by a foreign company.
If the tax authority, based on the results of tax control, discovers that a foreign company is conducting business in Ukraine, including through a Representative office, without registration of the foreign company in tax authority, the supervisory authority shall appoint an audit for the further inspection of such business activities.
Based on the results of an inspection, the tax authority may draw up an act of inspection, and on the basis of which it may unilaterally register the foreign company in Ukraine.
In accordance with subparagraph two of paragraph 60 of subsection 10 of section XX of the Tax Code, audits (inspections) of foreign companies engaged in business activities in Ukraine, which under requirements of the Tax Code should have been registered with the Tax Office and which have not fulfilled such requirements, may be instructed from 1 July 2021.
Clause 117.4 of Article 117 of the Tax Code states that a foreign company which carries out its activity through a Representative Office without being registered for tax purposes as provided for by Tax Code, shall be fined UAH 100,000.
The above amendments have raised many questions but unfortunately the tax legislation has no direct answers to them.
In order to eliminate ambiguous interpretations of certain provisions of the tax legislation, the Ministry of Finance of Ukraine by its Order No. 277 dated 19.05.2021 approved a general consultation with regard the registration of non-residents with the tax authorities and the performance of their obligations as corporate tax payers in Ukraine, as well as providing answers to 6 main questions.
In this article we focus on two of these questions that in our view are the most important for business.
The first: who now exactly has to pay corporation tax, the foreign company-taxpayer himself directly or his Representative office?
The Ministry of Finance has clarified that tax shall be paid by the foreign company through its Representative office, subject to due authorisation (powers).
That is, a Representative office may pay income tax on behalf of a foreign company, provided that the head of the Representative office is authorised to do so as a representative of the foreign company under a power of attorney.
The second question is whether a foreign company that is not registered as a corporate tax payer in Ukraine nor forms a permanent establishment there (i.e. carries out preparatory and auxiliary activities) but which does have a tax authority registered Representative office in Ukraine, whether it should now also be registered with the tax authorities?
The Ministry of Finance has clarified that in this case the foreign company must be registered with the tax authorities without registering as an income taxpayer.
We admit that the procedure for registering a foreign company in connection with their activities through Representative Office, including a permanent establishment, is new and has many nuances, and the supervisory authorities are continuing to clarify them and make amendments that should be taken into account when collecting, preparing and submitting documents to the supervisory authority.
Laudis Law Firm as always will be pleased to assist you with any such registration, to establish a representative company office in Ukraine and with all related procedures.
Galina Bastieieva
Counsel
Laudis Tax&Legal