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Ukraine's Tax Treaties with the UK and Turkey to Be Amended
Baker McKenzie, Kyiv, Ukraine,
Thu, Oct. 19, 2017
On October 9, 2017, Ukraine and the UK signed a Protocol amending the 1993 Tax Treaty (the "Ukraine-UK Protocol").
While the text of the Ukraine-UK Protocol is not yet publicly available, the Ukrainian Ministry of Finance has already reported on the agreement to increase Withholding Tax (the "WHT") on dividends, interest and royalty payments. While the currently effective 1993 Tax Treaty exempts both interest payments and royalty payments from WHT when the Ukraine-UK Protocol enters into force, the reduced rate of WHT will be established at 5%.
The reduced 5% WHT rate applicable to dividends distributed to shareholders, who directly hold at least 20% of the capital of a distributing company, will remain intact. Otherwise, an applicable rate is set to increase from 10% to 15%.
Finally, the Ukraine-UK Protocol is scheduled to enter into force after Ukraine and the UK notify each other about the completion of the domestic implementation procedures.
On October 9, 2017, Ukraine and Turkey signed a Protocol amending the 1996 Tax Treaty (the "Ukraine-Turkey Protocol").
As reported by the Ukrainian Ministry of Finance, while the tax rates would remain unchanged, the Ukraine-Turkey Protocol: (i) aligns the definition of "resident" with that of the OECD Model Tax Convention on Income and Capital, (ii) introduces new provisions with respect to collection of taxes, and (iii) elaborates upon and streamlines the procedure for exchange of information.
The Ukraine-Turkey Protocol is scheduled to enter into force after Ukraine and Turkey notify each other about the completion of the domestic implementation procedures.
The developments discussed above appear to be part of a broader Ukrainian policy to overhaul the existing tax treaty network, specifically those offering full exemptions from WHT. Therefore, the Ukrainian Government's 2015 Action Program declared an intention to amend the existing tax treaties with, inter alia, Cyprus, Switzerland, Luxembourg and The Netherlands.
In providing an overview of recent developments, the Ukrainian Ministry of Finance has: