The Government proposes the Parliament to amend the Convention with Cyprus on double taxation

The Government of Ukraine proposes the Parliament to ratify the Protocol on amendments to the Convention between the governments of Ukraine and Cyprus to avoid double taxation and prevent fiscal evasion with respect to income tax. The Government’s decision on this proposal was adopted on March 30.

The Ministry of Finance is actively working on increasing revenues to the state budget of Ukraine by expanding the tax base while reducing the fiscal pressure on tax payers. With this purpose, the Ministry of Finance is taking active steps to deshadow the economy and prevent capital drain to offshores.

In accordance with its policy, the Ministry of Finance and the Government of Cyprus agreed amendments to the Convention which are in line with OECD recommendations.

The amendments include:
- changes on the taxation of property sale. Income received by residents of Cyprus from the sale of shares and other corporate rights won’t be exempt from taxation in Ukraine, if more than 50% of the value of these corporate rights are directly or indirectly linked with immovable property located in Ukraine (now this income is not subject to taxation, though it can be linked with immovable property in Ukraine, which is normally should be taxed);
- changes in the dividends taxation. The key condition for applying the 5% tax rate on dividends is – one has to be an actual owner of 20% of the company who pays out dividends and invested at least €100.000 to purchase shares or other company rights (presently, only one of these conditions must be met to claim the 5% tax rate). In all other cases the 10% tax rate shall be applied;
- the tax rate for dividends is set at 5% (was – 2%).

The new taxation regulations will come into force not earlier than January 1, 2019, according to Art. 27 of the Convention.

Key facts on the standard conventions of the OECD:
- the pattern convention of the OECD on income and capital taxation is a standard agreement on the avoidance of double taxation in regard to the residents of one or two countries concluding this agreement and is recommended for use by all member states of the OECD;
- though Ukraine is not a member of the OECD, in February 2013 the Cabinet of Ministers adopted an action plan to deepen cooperation between Ukraine and the OECD in the period from 2013 till 2016; the Memorandum of understanding between the Government of Ukraine and the OECD on deepening mutual cooperation was concluded on July 2, 2014;
- due to the examination of the valid international treaties on the avoidance of double taxation, a single approach was elaborated in regard to the revision and preparation of draft treaties with the aim to adjust them to the Pattern OECD Convention.