Ukraine ratified double tax treaty with Luxembourg
On 14 March 2017 the Parliament of Ukraine ratified the Convention between the Government of Ukraine and the Government of the Grand Duchy of Luxembourg “On Avoidance of Double Taxation and Prevention of Income and Capital Tax Evasion” (the “Convention”) and a protocol to it (the “Protocol”).
As we informed earlier, the Convention was signed in 1997 but the Ukrainian parliament refused to ratify it because of the very low rates of dividends and interest taxation. On 30 September 2016 Ukraine signed the “Protocol” modifying the ‘not-yet-in-force’ Convention.
According to the press-release of the Ukrainian Ministry of Finance, the Protocol provides for the following withholding tax rates that will apply to passive income:
- Dividends – 15% or 5%: the reduced tax rate applies if the dividend recipient owns at least 20% of the capital of the dividend paying company.
- Interest – 10% or 5%: the lowest tax rate applies to the interest paid on bank loans.
- Royalties – 10% or 5%: the lowest tax rate applies to copyright royalties payable for scientific work, patent, trade mark, secret formula, process, or for information concerning industrial, commercial or scientific experience.
The Protocol has also addressed the issue of exchanging tax information. Its language now corresponds to the most recent OECD standards.
The Law on ratification of the Convention and the Protocol is now waiting to be signed by the President of Ukraine; mutual notification of both states is also required.
The ratification of the Convention and the Protocol is a step forward towards improving the investment climate in the country as Luxembourg gradually becomes a popular jurisdiction for international investors to structure their in-bound investments into Ukraine.