Автор: Galina Bastieieva

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:

1. Application form 1-OPN (a new one, approved by Order № 62), and a cover letter. 
2. 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.

   • 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.
 

On April 28, 2020 the Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering) of Proceeds from Crime, Financing of Terrorism and Financing of the Proliferation of Weapons of Mass Destruction” (hereinafter – Law № 361-IX) came into force. According to the law, legal entities were obliged to submit information about the ultimate beneficial owner to the extent specified by the Law along with the ownership structure to the state registrar within three months from the date of entry into force of the regulatory legal act approving the form and content of ownership structure.

Accordingly, the Law of Ukraine “On State Registration of Legal Entities, Individual Entrepreneurs and Public Associations” (hereinafter – the Law on Registration) was amended and all newly created legal entities are obliged to submit information and documents on the ultimate beneficial owner to the state registrar within 14 calendar days  each calendar year following the year of registration of legal entity. Also entities should further notify the state registrar of any changes within 30 working days from the date of their occurrence and submit documents confirming these changes.

We reported about this in a previous article “Compulsory notification of the State Register about ultimate beneficial owner”

Form and Content of Ownership Structure is approved, countdown started

On June 11, 2021, the Government Courier published Order of the Ministry of Finance of Ukraine # 163 of March 19, 2021 “On Approval of the Regulations on the Form and Content of Ownership Structure” (hereinafter – Order № 163), which enters into force July 11, 2021, and therefore the specified period of 3 months will finally begin its countdown from 12.07.2021.

According to Order 163, the ownership structure by form is an official document that is a schematic representation of the ownership structure of a legal entity, showing all persons who directly or indirectly own this entity alone or jointly with other persons or regardless of formal ownership have the ability to significantly influence the management or activities of the legal entity.

Samples of the schematic representation of the ownership structure are published on the official website of the Ministry of Finance.

The beneficiary about whom detailed information should be provided

The Law # 361-IX, according to which the Order 163 was adopted, stipulates that the ultimate beneficial owner is:

for legal entities – any natural person who has a decisive influence on the activities of a legal entity (including through the chain of control) is the beneficiary in respect of which detailed information must be submitted;

for trusts – the founder, trustee, defender (if any), beneficiary (beneficiary) or group of beneficiaries (beneficiaries), as well as any other individual who has a decisive influence on the activities of the trust (including through the chain of control / ownership );

for other legal structures – a person who has a status equivalent to or similar to the persons specified for trusts. 

Indications of direct decisive influence on activity is the direct ownership by a natural person of a share in the amount of not less than 25 percent of the authorized capital or voting rights of a legal entity.

Indications of indirect decisive influence on the activity is the possession by an individual of a share of at least 25 percent of the authorized capital or voting rights of a legal entity through related natural or legal persons, trusts or other similar legal structures, or exercising decisive influence by exercising control rights, possession, use or disposal of all assets or their share, the right to receive income from the activities of a legal entity, trust or other similar legal structure, the right to decisive influence on the formation, voting results of governing bodies, as well as transactions that determine the basic conditions economic activity of a legal entity, or the activity of a trust or other similar legal structure, to make binding decisions that have a decisive impact on the activities of a legal entity, trust or other similar legal entity, regardless of formal ownership.

In this case, the ultimate beneficial owner may not be a person who has a formal right to 25 percent or more of the authorized capital or voting rights in the legal entity, but is a commercial agent, nominal owner or nominal holder, or only an intermediary for such a right.

That is, despite the reflection in the ownership structure of all persons who directly or indirectly own a legal entity, the application form provides information only about those persons who meet the definition of the ultimate beneficial owner, enshrined in Law # 361-IX and the document specified in the law is given only in relation to this person (persons).

List of documents to be submitted

According to Art. 17-1 of the Law on Registration to confirm information about the ultimate beneficial owner of the legal entity, the following documents are to be submitted:

1. application for confirmation of information on the ultimate beneficial owner (form 6);
2. ownership structure according to the form and content determined in accordance with the legislation;
3. an extract, certificate or other document from the commercial, banking, court register, etc., confirming the registration of a non-resident legal entity in the country of its location – if the founder of the legal entity is a non-resident legal entity;
4. a notarized copy of the document certifying the person who is the ultimate beneficial owner of the legal entity for a non-resident individual and, if such a document is issued without the use of the Unified State Demographic Register (book format passport issued before July 2016) for a resident individual.

Additional documents required in some cases

The Order also stipulates that in certain cases, it may be necessary to submit additional documents with regards the ownership structure.

Thus, if there are foreign legal entities and / or persons who are not citizens of Ukraine and are citizens (subjects) of another state or states, trusts, and or other similar legal structures in the ownership structure of the legal entity, official documents are to be submitted (their copies, in particular notarized copies) confirming the ownership of these persons, trusts and / or other similar legal entities of corporate rights in a legal entity, except when information about the relevant entities is available in the Unified State Register of Legal Entities, Individuals persons – entrepreneurs and public formations.

If there is a final beneficial owner in the ownership structure of a legal entity, information on the possibility of exercising a decisive influence on the management or the activities of the legal entity are not clearly tracked according to the Unified State Register, to carry out the registration action in the package of documents together with the ownership structure the schematic representation of the ownership structure must also be accompanied by official documents (copies, including notarized copies), confirming the ability to exercise decisive influence on management or activities of the legal entity by control / possession.

In particular this can be:

• a contract of sale or gift of corporate rights (shares in the authorized capital); 
• the decision of the general meeting of participants (the decision of the sole participant) of the legal entity to determine the size of the authorized (composed) capital and the size of the shares of the participants; 
• the act of acceptance-transfer of a share (part of a share) in the authorized (composed) capital of a legal entity; 
• account statement in the depositor’s securities;  
• statement of account in the securities of the nominal holder; 
• property management agreement; trust agreement; 
• trust declaration and / or agreement; 
• marriage certificate; 
• extract or other document from an official source, including trade, banking, court register; 
• other documents confirming the exercise of decisive influence (control) on the activities of the legal entity.

Can a limited liability company not have beneficial owners?

We are awaiting clarification from the Ministry of Justice on this issue. To date, the practice is such that registrars do not require information on beneficial owners in the case when the shareholders of a limited liability company are joint stock companies (both Ukrainian and foreign) and non-profit organizations.

Procedure of submitting documents

The application and documents are submitted in paper or electronic form, in person (representative) or by post. In the case of filing an application for state registration by post, the authenticity of the applicant’s signature must be notarized.

In the case of the application of documents not by the head of the legal entity, or the case of creation not by the founder (another person authorized by the meeting), the documents are also accompanied by the original (notarized copy) of the document certifying the authority of the representative such as power of attorney (unless information about the authority of this representative are contained in the Unified State Register).

Regarding the amount of the administrative fee for submitting information on the ultimate beneficial owner, if the legal entity submits documents within the above three-month period, the administrative fee is not charged. In case of simultaneous changes to the Unified State Register of the legal entity or expiration of three months from the date of entry into force by a normative legal act approving the form and content of the ownership structure, the administrative fee will be levied for the sum of the amount established by Article 36 of the Law on Registration (0.3 of the subsistence minimum for able-bodied persons, which amounts to UAH 714 in 2021).

Сonsequences the company would suffer if it fails to comply with the law?

The Code on Administrative Offences of Ukraine shall impose a fine on the manager(s) of a company which fail to comply with above mentioned requirements. The amount of fine is between 1000 to 3000 non-taxable minimum incomes (means 17 000,00-51 000,00 UAH).

Laudis Legal&Accountancy is always ready to provide qualified professional assistance and accompany you in the procedure of notifying the state registrar about the ultimate beneficial owners.

The main requirements and terms of international contracts are defined by the Law of Ukraine “On Foreign Economic Activity” № 960-XII dated on 16.04.91 (hereinafter referred to as the “Law № 960”).

An International Contract (hereinafter referred to as the “Contract”) it is an agreement between a company founded in Ukraine and an international company, and is aimed at creating, modifying or terminating their mutual rights and obligations in international trade.

International Contracts are executed in either a written or electronic form.

In the case of export of services (other than transport services), the Contract may be concluded by accepting a public offer, by exchange of e-mails, or in other ways, such as issuance of an invoice in electronic form for the services provided.

In cases where parties decide to enter into an agreement in electronic form, they shall be guided by the requirements of the Law of Ukraine “On Electronic Commerce” and the Law of Ukraine “On Electronic Trust Services”.

Executing the Contract

The main requirement of an electronic form of contract it is that the parties shall sign the contract using electronic digital signatures or facsimile signatures.

In practice there are difficulties with these methods of signing.

The complication of using an electronic digital signature lies in the legal acceptance of signatures between Ukrainian and foreign electronic signatories.

One of the conditions for acceptance of foreign digital signatures in Ukraine is the conclusion of an international treaty with Ukraine; however at the time of publication of this article no such treaty has yet to be concluded with any country, though such treaties are planned for the future.

The complication for using facsimile signatures is that the parties must beforehand execute a separate contract (with wet signatures) and agree on the terms of using facsimile signatures. Such a contract must also contain specimens of their respective handwritten signatures.

This type of electronic signing can be comfortable and convenient to use for parties who, for example, have long term business partnerships in Ukraine and often make multiple transactions.

Governing Law

Parties to the Contract are entitled to choose the governing law (also known as applicable law), but that doesn’t mean that the terms of the contract are allowed to contradict Ukrainian legislation.

Law № 960 sets forth that a Contract may be judged by a court to be invalid if it does not meet the requirements of Ukrainian law or with international treaties made by Ukraine.

Therefore, notwithstanding the right to choose the governing law, the Contract shall comply with the requirements of the Civil Code of Ukraine, the Commercial Code of Ukraine and other legislative requirements of Ukraine for a particular type of contract.

Essential (material) Contract Terms

All Contracts shall include essential terms as:

• Subject (scope of the contract), Consideration (reciprocal exchange of value) and Term (duration of the contract);
• terms that are defined by law as essential or mandatory for certain types of contracts;
• all those terms on which, at the request of at least one of the parties, agreement shall be reached.

Particular attention shall be paid to the place where the contract is concluded and the place of dispute resolution. This may in effect determine what the governing law will be (unless there is a specific clause to that effect), what taxation will be imposed and what costs the parties will incur to resolve a dispute should one arise.

Mandatory (Imperative) Rule of Law

As discussed at the outset of the article, regardless of the selected governing law, the effect of the mandatory application of the law of Ukraine governing the relevant relations of the Contract cannot be limited.

An example of such a rule is the mandatory notarization of conveyancing agreements and their registration by the state.

Furthermore, if one deals with an international contract then it is also necessary to comply with the mandatory rules established by the National Bank of Ukraine (NBU) with regards international settlements.

One example of a NBU mandatory rule is a set deadline for cross-border transactions of 365 calendar days.

In other words, it is legally stipulated that payment under an international contract, as well as the delivery of goods, services and works, must be made within 365 days. Failure to comply with this requirement will result in the imposition of penalties.

This deadline does not apply to transactions related to Contracts of less than UAH 400 000.00 (or its equivalent in foreign currency).

We are happy to have presented in this article the main terms relating to international contracts. Rest assured, subject to correct contract drafting, foreign trade in Ukraine is not complicated to carry out.

Furthermore and finally, Ukrainian Law does not require special permits nor licenses for companies or entrepreneurs of Ukraine to participate in foreign trade.

If you are the owner or manager of business, lawyer or accountant dealing with documentary support of the company, this article could be actual for you.

From the date of April 28, 2020 entered into force Law of Ukraine № 361-IX “On Prevention and Counteraction to Legalization (Laundering)of the Proceeds from Crime or Terrorism Financing, as well as Financing Proliferation of Weapons of Mass Destruction” (hereinafter referred – The Law № 361).

The Law № 361 imposed into existing companies the obligation to provide the State Registrar with actual information about Ultimate Beneficial Owner (hereinafter referred – UBO) within 3 months from the date of entry into force the Regulation that will approves the form of application and content of the ownership structure.

On the moment of posting this article mentioned Regulation hasn’t been adopted, consequently respective 3 months’ term hasn’t been started yet.

The Law № 361 amends The Law of Ukraine № 755-IV “On State Registration of Legal Entities, Individual Entrepreneurs and Public Organizations” (hereinafter referred – The Law № 755) by clause 17-1 and also created obligation for all companies (new and existing) to provide State Registrar with update information about UBO on a permanent basis every year within 14 calendar days from the date of state registration of the company.

The Law № 755 lay emphasis on company’s obligation to keep updated respective information about UBO, this means that if the ownership structure has changed, the company undertakes to notify with updated information the State Registrar within 30 business days from the date of such changes.

Moreover, if company decides to register changes, which should be included to State Register, along with filing relevant documents, company should either file update information about beneficiary or inform about absence of any changes in ownership structure.

If filed information were not full or inaccurate, company should refile corrected documents within 3 business days from the moment of discovery such inaccurate data.

Documents’ required

According to the clause 17-1 of The Law № 755 documents that requires for providing the information about UBO are the follows:

• application form;
• ownership structure;
• if the shareholder of the company is non-resident – the extract from the trade, banking, and court register of a non-resident legal entity of such entity’s country of location, – (apostilled or otherwise legalised in the country of issue, and translated into Ukrainian);
• notarized copy of identity document of UBO.

Ways of filing documents

Company could file documents in follows ways:

*in hard copy personally or postal;

*in electronic form through the portal of electronic services using digital signature

Finally, what consequences the company would suffer if it fails to comply with the law?

The Code on Administrative Offences of Ukraine imposed fine on manager of the company which fail to comply with above mentioned requirements of law. Amount of a fine is of 1000 to 3000 non-taxable minimum incomes (means 17 000,00-51 000,00 UAH).