{"id":18591,"date":"2021-02-12T16:37:35","date_gmt":"2021-02-12T14:37:35","guid":{"rendered":"https:\/\/kmp.ua\/?p=18591"},"modified":"2021-02-16T20:18:07","modified_gmt":"2021-02-16T18:18:07","slug":"all-non-residents-permanent-establishments-are-required-to-re-register-with-the-tax-authorities","status":"publish","type":"post","link":"https:\/\/kmp.ua\/en\/analytics\/exclusive\/all-non-residents-permanent-establishments-are-required-to-re-register-with-the-tax-authorities\/","title":{"rendered":"All non-residents\/permanent establishments are required to [re]register with the tax authorities"},"content":{"rendered":"

Last year a number of changes were introduced to the Tax Code of Ukraine (the \u201cTax Code\u201d). In this material we analyse some aspects of the changes in the definition of income tax payers regarding non-residents and their permanent establishments in Ukraine.<\/p>\n

1.<\/p>\n

The Law “On amendments to the Tax Code of Ukraine regarding improvement of tax administration, elimination of technical and logical inconsistencies in tax legislation” (the \u201cLaw 466\u201d) amended, in particular, para. 133.2 of Art. 133 of the Tax Code, which defines the list of non-resident income tax payers:<\/p>\n

“133.2. Non-resident taxpayers are<\/strong>:<\/span><\/p>\n

\u2026<\/span><\/p>\n

133.2.2.\u00a0non-residents conducting business activity at the territory of Ukraine through the permanent establishment<\/strong> and\/or receiving income from Ukrainian sources as well as other non-residents obliged to pay the tax in accordance with this Section”.<\/span><\/p>\n

While in the preceding version of this subparagraph only “permanent establishments of non-residents that receive their income from the Ukrainian sources\u2026”<\/span>\u00a0were mentioned.<\/p>\n

Th<\/strong>us<\/strong>, <\/strong>previously <\/strong>a non-resident’s permanent establishment<\/strong> was treated as a separate category for the purposes of the income tax. Now,<\/strong> non-resident entities conducting their business in Ukraine through permanent establishments and receiving income form Ukrainian sources are considered as relevant taxpayers. <\/strong><\/p>\n

What are the consequences to arise in this case? And what actions and decisions can be required on a practical level now?<\/p>\n


\n2.<\/p>\n

According to the provisions of para. 133.3 of Art. 133 of the Tax Code, prior to commencement of its business activity through the permanent establishment, a non-resident shall be registered with the controlling authority at the location of its permanent establishment in accordance with the procedure established by the central body of executive authority ensuring the formation and implementation of the state financial policy.<\/p>\n

While para. 60 of Sub-section 10 of Section XX \u201cTransitional Provisions\u201d in the current version establishes (as amended, inter alia<\/em>, by the Law of Ukraine \u201cOn Amendments to the Tax Code of Ukraine and other laws of Ukraine regarding ensuring the collection of data and information necessary for the declaration of certain taxable items\u201d (the \u201cLaw 1117\u201d) the following:<\/p>\n

“60. Non-residents (foreign companies, organizations), <\/strong>conducting<\/strong> business <\/strong>activit<\/strong>y<\/strong> at<\/strong> the territory of Ukraine and\/or <\/mark><\/strong>having duly accredited<\/mark> (registered, <\/mark><\/strong>legalized<\/mark>) remote divisions <\/mark><\/strong>at the territory of Ukraine<\/mark>, including permanent establishments, prior to the effective date of this Law<\/mark>, and <\/strong>which <\/strong>are not registered with the <\/strong>controlling<\/strong> authorities as of January<\/strong> 1,<\/strong> 2021, shall<\/span><\/strong> submit<\/strong> documents<\/strong> for their registration<\/strong><\/span> to the controlling authorities within three months<\/strong><\/span> in the manner prescribed by para. 64.5 of Art. 64 of this Code”.<\/span><\/p>\n

In other words, it is suggested that non-residents, operating in Ukraine through already registered permanent establishments, which were registered [as permanent establishments] with the tax authorities as of January 1, 2021, shall proceed with the registration of the non-residents as such.<\/p>\n

According to subpara. 2 of para. 60 of Sub-section 10 of Section XX “Transitional Provisions” of the Tax Code the<\/strong> permanent <\/strong>establishments<\/strong> of non-residents<\/strong>,<\/strong> registered as taxpayers<\/strong> (including of income tax) whithin the period before January 1, 2021, shall<\/strong> remain<\/strong> to be<\/strong> payers of such taxes<\/strong> in accordance with the requirements of the Tax Code until<\/strong> registration of<\/strong> the<\/strong> respective non-residents as taxpayers<\/strong><\/span> (including of income tax).<\/strong><\/p>\n

3.<\/p>\n

More detailed registration issues are set out in para. 64.5 of the Tax Code. It establishes the terms of non-resident\u2019s registration with the tax authorities, a general list of documents to be attached to the application and provides for possible audit if there is evidence of non-resident\u2019s business activity without tax registration.<\/p>\n

At the same time, it is determined that the registration procedure shall be established by the Ministry of Finance.<\/p>\n

At the subordinate legislation level, the procedure for registration with tax authorities is currently regulated by the Procedure on Registering and Accounting of Taxpayers No. 1588.<\/p>\n

As of the date of this review, no changes have been made to the Procedure No. 1588 regarding the registration of non-residents acting through the permanent establishments. Yet, the website of the tax authorities provides information that the draft of the relevant changes has been prepared and currently is under approval at the level of the Ministry of Finance.<\/p>\n

Hence, for today the procedure has not been determined on the subordinate legislation level, although almost half of the 3-month period prescribed for the registration of non-residents has passed.<\/p>\n

4.<\/p>\n

For the sake of completeness, it should be noted that despite the fact that now non-residents, operating through the permanent establishments, shall be registered with the tax authorities, para. 64.5 of Art. 64 of the Tax Code also establishes that in case of accreditation (registration, legalization) on the territory of Ukraine of a remote division of a foreign legal entity, organization, including a permanent establishment, a remote division of such non-resident shall be registered simultaneously with the non<\/strong>–<\/strong>resident\u2019s registration.<\/strong><\/p>\n

That is, in fact, double accounting is provided: (i) for the purposes of income tax \u2013 accounting of a non-resident operating through a permanent establishment, and (ii) for other tax purposes \u2013 the permanent establishment itself remains (which is kept as a separate category of taxpayer \u2013 an entity, for example, for VAT purposes).<\/p>\n

5.<\/p>\n

Respectively, a practical question arises for non-residents having permanent representations in Ukraine \u2013 whether any action shall be done in respect of registration of non-resident as such, despite the absence of subordinate legislation on this procedure?<\/p>\n

Or is it better to wait a bit?<\/p>\n

It should be also considered that subpara. 2 of para. 60 of Sub-section 10 of Section XX “Transitional Provisions” of the Tax Code provides for the possibility of conducting audits<\/strong> of non-residents<\/strong> (foreign companies, organizations) carrying out business activity<\/span> at the territory of Ukraine and which were due to register in the manner <\/strong>prescribed by para. 64.5 of Art. 64 of this Code, and which had not fulfilled the requirements of subpara. 1 of this paragraph, by tax authorities from July 1, 2021.<\/p>\n

As this regulation further stipulates, on the outcomes of the audit conducted according to para. 2 the tax authorities:<\/p>\n