Following a second round of negotiations on 2 July 2015, the Ministry of Finance represented by Deputy Minister of Finance Olena Makeyeva, together with representatives of the Republic of Cyprus, agreed on an increase in the tax rate on separate passive incomes.
The Ministry of Finance has set an objective of increasing the state budget in Ukraine by means of broadening the tax base, encouraging economic activity out of the shadows, fighting against tax evasion, and, at the same time, reducing the pressure on law-abiding taxpayers. Recent weeks has seen the introduction of the obligatory usage of cash registers, an electronic VAT administration system, for a third group of taxpayers – those who have greater than 1 million UAH of income per year. The reform of the State Fiscal Service has already begun. Aside from these measures, the Ministry of Finance works actively on capital outflow from offshore accounts.
The Ministry of Finance and the Government of Cyprus also agreed to sign the new Convention regarding double tax evasion in line with the OECD recommendations.
In particular this includes the following:
- In Ukraine incomes are not taxed where residents of Cyprus receive from the disposal of stock and other corporative rights, more than 50% of costs which are connected directly or mediated with estate or property located in Ukraine.
- An obligatory condition for the application of a 5% tax when dividends are paid, except where a 20% share of ownership in a company has invested at least 100 000 EUR to the nominal share capital of the Ukrainian company.
- An agreement on a 5% tax rate for the payment of interest.
If the Convention is signed and ratified by the respective Parliaments of Ukraine and Cyprus, the new conditions of taxation on passive incomes will come into force, as stated in Article 27 of the valid Convention, no sooner than 1 January 2019.
Key facts about the OECD model tax convention:
- the Organization for Economic Co-operation and Development (OECD) model tax convention is a standard agreement on double tax evasion regarding residents of one or both countries, or parties, who concludes this agreement, and it is also recommended for use by all member-states of the OECD.
- However, Ukraine is not a member of the OECD, and in February 2013 the Government of Ukraine approved an action plan regarding deeper cooperation between Ukraine and the OECD during 2013-2016. A Memorandum on mutual understanding and deeper cooperation between the Government of Ukraine and the OECD was concluded on 2 July 2014.
- According to the agreements, the Government of Ukraine has set a goal to adjust to the OECD model tax convention for all running contracts in order to prevent capital outflow abroad.
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