Non-residents with permanent establishments in Ukraine should get a separate tax registration

The Ukrainian tax authorities issued a Letter¹ clarifying certain recently-enacted changes to the Tax Code of Ukraine concerning permanent establishment ("PE") rules and the tax registration of non-residents having business activities in Ukraine.

What does it mean 

Non-residents carrying out business activity in Ukraine should submit the documents for registration as corporate profits tax ("CPT") payers in Ukraine before 1 April 2021. 

Even non-residents with duly registered representative offices ("RO"), including PE, should submit the documents before the mentioned deadline.

Thus, registered ROs/ PEs of non-residents will cease to be CPT payers from the moment when their head office non-residents get the respective registration in Ukraine. 

However, the registered ROs will continue being taxpayers for taxes other than CPT, e.g. VAT, payroll taxes, land tax (if any). Thus, for certain non-residents, the case may be that the non-resident itself will be responsible for CPT compliance in Ukraine, while its RO/PE will report and pay all other tax liabilities.

The Ministry of Finance of Ukraine is preparing the procedure for registering non-residents as CPT payers and plans to issue it soon.

Areas of concern

Even though the Letter provides some long-needed clarifications regarding new and transitional PE rules, it also raises a number of concerns and questions. Here is a list of the main ones in PwC’s opinion:

Would depriving PEs of non-residents from CPT registration cause problems with the application of other provisions of the Tax Code of Ukraine, where PEs are referred to as separate CPT payers?

How should the new requirements be followed in the absence of the new procedure for the registration of non-residents as CPT payers?

Should non-residents with business activities not triggering PE in Ukraine (e.g.non-commercial RO) still register as CPT payers?

Will the non-resident as a newly registered CPT payer be a legal successor of its PE with respect to the tax assets and liabilities of previous reporting periods?

Will the deregistration of an existing RO/PE of a non-resident result in a tax audit of such RO/PE?

Should the newly registered non-resident start preparing separate financial statements for CPT purposes or may the financial statements of its existing RO/PE be sufficient? 

If the existing RO/PE was submitting quarterly CPT returns, should its non-resident head office (i) continue submitting quarterly returns; or (ii) be treated as a new CPT payer and submit an annual tax return in 2021?

How should the non-residents pay the CPT liabilities in Ukraine, i.e. which bank account should be used, currency/foreign exchange rate, etc.?

Can the RO/PE continue reporting and paying the CPT liabilities of the non-resident by taking on the role of its tax representative?  

For a deeper discussion of how these issues might affect your business, please contact us.

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¹ Letter of State Fiscal Service of Ukraine No. 2367/7/99-00-21-02-01-07 dated 27 January 2020