On January 1, 2021, changes to the Tax Code of Ukraine came into force. According to them, all foreign legal entities operating in Ukraine through their separate divisions (representative offices), including permanent establishments, must be registered with Ukrainian regulatory authorities. Such changes have a significant impact on the parent companies that have representative offices in Ukraine, henceforth not only the representative offices but also the parent companies themselves shall be registered with Ukrainian tax authorities.
Thus, foreign legal entities that have separate divisions on the territory of Ukraine, but not registered with Ukrainian regulatory authorities as of January 1, 2021 shall submit documents for registration with the tax authorities of Ukraine. Those foreign legal entities that will register separate divisions on the territory of Ukraine after the entry into force of changes to the Tax Code of Ukraine will be registered with the tax authorities of Ukraine in the process of state registration of a separate division.
At the same time, it is important to note that registration of parent company with Ukrainian tax authorities does not itself establish that the parent company has obligations to pay certain taxes in Ukraine. These obligations arise, for example, when:
- a foreign legal entity carries on business on the territory of Ukraine through a permanent establishment;
- and/or receives income sourced in Ukraine.
In this case, a foreign legal entity, in addition to being registered with the tax authorities, shall also register as a payer of Corporate Income Tax.
After registration of a foreign legal entity as a payer of Corporate Income Tax, it has obligations to prepare and file a tax return and pay Corporate Income Tax, at the same time the separate division of a foreign legal entity is deregistered as an Corporate Income Tax payer, but remains registered as a payer of other types of taxes.
If during inspection Ukrainian regulatory authorities establish that a foreign legal entity operates in Ukraine through a separate division, including a permanent establishment, and is not registered with Ukrainian tax authorities, the penalty in amount UAH 100,000.00 (which is equivalent to USD 3,600.00) may be imposed on such foreign legal entity. In addition, for such offense, the Tax Code of Ukraine also provides for seizure of property of a foreign legal entity, which is to prohibit the exercise by a foreign legal entity of the rights to dispose of or use its property. It should be noted that from July 01, 2021the tax authorities are allowed to carry out inspections for compliance by the foreign legal entities with the requirements of the Tax Code of Ukraine regarding the procedure of registration of foreign legal entities with Ukrainian tax authorities.
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