Ukrainian parliament ratifies amendments to Double Tax Treaties with UK and Cyprus


On 30 October 2019, the Ukrainian parliament ratified protocols amending Double Tax Treaties (the “Treaties” or “Treaty”) with the United Kingdom and Cyprus. The protocols revise the withholding tax (WHT) regime for certain types of income and introduce other significant changes.

Ukraine-Cyprus Treaty

The protocol to the Treaty between Ukraine and Cyprus includes the following key changes:

(a)   A new WHT rate for dividends:

  • maximum WHT rate for dividends is decreased from 15% to 10%;
  • reduced WHT rate for qualified investments remains at 5%, provided the recipient of dividends (i) is a company (other than partnership), (ii) holds directly at least 20% share capital in a paying entity, and (iii) has invested at least EUR 100,000 into shares or other rights of the paying entity.

(b)   A new WHT rate for interest:

  • maximum WHT rate for interest is increased from 2% to 5%.

(c)   A new WHT regime for capital gains:

  • rules on taxation of capital gains are substantially amended allowing a State party to impose WHT on capital gains realised from sale of shares or other corporate rights, deriving 50% or more of their value directly or indirectly from real estate located within that State;
  • various exceptions from the above rule exist, including share sales made through corporate reorganisation, or when the real estate, which the shares derive their value from, is used in business operations;
  • capital gains from the sale of types of property, for which no special regime is provided for under the Treaty, is exempted from the WHT in the source country if those gains are subject to tax in the alienator’s country of residence.

In addition, the protocol grants Cyprus with “most favourable nation” status with respect to taxation of dividends, interest, royalty and capital gains. As a result, if Ukraine agrees to establish a more favourable WHT regime in a tax treaty with any other state, then Ukraine and Cyprus are entitled to amend its Treaty to make it compatible.

Ukraine-UK Treaty

The protocol to the Treaty between Ukraine and the UK includes:

(a)   New WHT rates for passive income:

  • maximum WHT rate for dividends is increased from 10% to 15%; reduced WHT rate for qualified investments remains at 5%, provided the recipient of dividends owns directly or indirectly at least 20% of share capital in a paying entity;
  • maximum WHT rate for interest is increased from 0% to 5%;
  • maximum WHT rate for royalty is increased from 0% to 5%;
  • the protocol abandons existing provisions of the Treaty which mandate application of a reduced WHT rate for dividends, interest and royalty only if the recipient is taxed in his country of residence with respect to such income.

(b)   A new “principle purpose test” and other anti-avoidance provisions:

  • the Treaty's preamble includes a statement preventing use of the Treaty to achieve a double non-taxation effect or the creation of indirect benefits for residents of third countries;
  • right to receive benefits under the Treaty may be denied if it is evident that the respective arrangement was put in place exclusively for the purposes of receiving such treaty benefits;
  • income of fiscally transparent entities or arrangements (such as partnerships) is treated, - for the purposes of the Treaty, - as income of the State party’s resident only in portion of income that is treated for local tax purposes as income of that State’s resident.

(c)   Enhancing administrative procedures:

  • exchange of tax information and mutual agreement procedures have been improved.

The ratification laws in relation to both protocols are expecting to be signed by the President of Ukraine. Afterwards, Ukraine shall notify Cyprus and the United Kingdom respectively on completion of local ratification procedures. Each protocol will enter into force upon completion of ratification procedures by both signing States.

Provided that protocols enter into force by the end of 2019, the amended provisions (with some exceptions) will apply to income paid or accrued from 1 January 2020. Subsequently, businesses are advised to reconsider and improve their holding structures and cross-border operations in order to prepare for the rules coming into place in the New Year.

If you have any questions or additional queries, contact your regular CMS source or our local CMS tax experts: Olexander Martinenko, Viktoriia Stavchuk, Anna Pogrebna and Oleksandra Prysiazhniuk.