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PhD in Economics, Lawyer, LLM, Managing Partner, AMBER Law Company
Semen Khanin possesses practical experience in the areas of finance and banking law, currency regulation and control matters, investment operations, taxation. He is the managing partner of the AMBER Law Company, providing comprehensive legal support for business. AMBER Law Company is represented abroad by its two branches in Cyprus and Israel.
Semen Khanin is the team’s leading expert in taxation, banking, and finance. With over 25 years of practical experience in the Ukrainian banking system and foreign exchange control system, as well as strong personal charisma and a sense of humor, he has gained great popularity among his colleagues and clients, offering unusual and innovative approaches to matters of concern for them.
If You’re a Non-Resident
If you are a non-resident legal entity and clearly understand the specific features of operations on emerging markets, then Ukraine, as always, welcomes you with open arms. In general terms, it should be noted that Ukraine is one of the most stable countries in the world. Years pass by, authorities, parties, and ideologies change, but if you have a closer look, nothing has changed in broad terms. In such and precisely such an environment, some particularly motivated businessmen managed to earn a pretty penny.
As of today, the changes introduced by the Law On Currency and Currency Transactions, the amendments to the Tax Code introduced by Law No. 1210, create new opportunities for investors. To take full advantage of these and not to run into the same trap you should, first of all, pay attention to the following.
Following Law No. 1210 coming into force, the concept of CFC — controlled foreign companies — will be introduced to the Tax Code. In plain language, this means that if a company has a beneficiary, a shareholder, a director, or a secretary that are citizens of Ukraine, legal entities of Ukraine or tax residents of Ukraine, or a company has issued a general power of attorney for such persons, or a company is managed from Ukraine, or a control officer can manage its bank accounts, such a company is recognized as a controlled foreign company. By the way, the mentioned can also include non-legal entities — partnerships, trusts, funds, etc. And if a non-resident company is recognized as a CFC, it has tax liabilities in Ukraine. Moreover, the object of taxation will be an individual-control officer, who will be obliged to pay the due part of corporate income tax.
Legislators have even provided for the case when a non-resident company is not required to submit financial statements at the place of its incorporation. If this is the case, the Law obliges the control officer to keep such statements in an international format and, what is more, the supervisory authority in Ukraine has the right to request an audit opinion on these financial statements.
The procedure for such calculation of tax and payment of tax is described in detail in Law No. 1210, and, as things go in our country, this description runs to more than one page of print. Of particular importance, it should be noted that the supervisory authority may require transfer pricing documentation from a CFC. If such documentation is not provided, the supervisory authority will increase the amount of profit by 30% of the value of income or expenses, for which such documents have not been provided. If a CFC makes profits through its representative office in Ukraine, such profits will be reduced by the amount of the representative office’s profit.
In certain cases, described in the Law, a CFC may be exempt from paying taxes in Ukraine. The only thing required is an agreement on avoidance of double taxation between Ukraine and the country of a non-resident company, and such foreign jurisdiction is not included in the list of offshore zones, the CFC has been paying taxes at the place of its incorporation at a rate of at least 5 basis points from the tax rate in Ukraine, or part of the CFC’s passive income has not exceeded 50% of its total income. By the way, as our legislator has established, if passive income receipt is a CFC’s main activity, such income shall be recognized as active income. The only concession is that the CFC is not obliged to pay taxes if its income is less than EUR 1 million per annum, or if the CFC is a public company with shares traded on a well-known stock exchange, or if CFC is a charitable organization.
We would not be doing our duty if we were not interested in the following question: how would the supervising authority find out about our control over a non-resident company? The law is ready to provide an answer to this pressing question: the obligation to notify the supervisory authority rests with all public authorities, banks, or financial institutions. Therefore, those residents of Ukraine that have opened CFC accounts in Ukrainian banks, indicating themselves as control officers, should think twice. It should also not be forgotten that there are public registers of directors, shareholders, and beneficiaries in most countries, and that they have announced the forthcoming exchange of tax information within the framework of the BEPS plan, interaction between law-enforcement agencies of different countries, and SCFM opportunities.
It should be noted that for all non-resident legal entities that plan to conduct business in Ukraine, the Law establishes the obligation to register the relevant legal entities of Ukraine and to conduct all transactions exclusively through such Ukrainian legal entities.
If, as is typically the case, a non-resident legal entity is not a CFC and does not conduct business in Ukraine, but only intends to open an account in one Ukrainian bank or give a loan to a Ukrainian company, the Law permits it. Only a few financial monitoring requirements may interfere. The following may be required of you:
- all the company registration documents, apostilled or legalized for Ukraine with translation into the Ukrainian language;
- final beneficiary certificate;
- beneficiary CV;
- description of the company’s activities with an indication of its main contractors;
- statement on existing company accounts;
- Certificate of Good Standing;
- financial statements certified by an auditor;
- documents confirming payment of taxes;
- data on employees and the company’s office, payment of salaries to employees;
- documents confirming the origin of the company’s funds;
- links to public information about the company on the Internet (website, etc.);
- certified copies of passports of the beneficiary, director, authorized person;
- personal tax statements of the company director, shareholders, beneficiary.
And as soon as a happy banker shakes your hand and congratulates you on the opening of an account, the inviolable law will oblige him/her to require business documents from you for each transaction and to credit/debit funds only after an inspection. The bank, by following these recommendations, not only adheres to the letter of the law and protects itself from possible sanctions from the National Bank of Ukraine or other government agencies but, of course, defends its client. After all, if the NBU detects a violation during the inspection, it may be followed by sending relevant notifications to the law-enforcement agencies of Ukraine: NABU, Security Service of Ukraine, PGOU (now the Prosecutor-General’s Office). And the impartiality of such bodies is widely known even outside our country.
Therefore, the entire mechanism that exists of non-resident operating companies, trusts, funds, holdings, etc. did not come to naught. It’s quite the other way around! The thing is that using such tools has become more difficult, which means that those who, without fear of difficulties, sift out the truth and get to the ultimate result, may make unprecedented profit.