Contract between a resident and a non-resident

A contract between a resident and a non-resident must simultaneously work for the business, the bank, the tax authorities, and the dispute resolution mechanism. Prikhodko & Partners develop foreign economic contracts for services, supply, licensing, IT, marketing, and investment operations. As part of international corporate law, we verify not only the legal text but also the currency, tax, and banking route of the transaction.

An international contract is often used based on a foreign partner’s template, without being adapted to the status of the Ukrainian party. This leads to problems with confirming services, payment terms, non-resident income tax, VAT, sanctions restrictions, and the enforcement of decisions abroad.

Key points

• The contract must determine the applicable law, language, currency, and dispute resolution body.
• The bank evaluates the subject, documents, terms, and economic substance of the payment.
• Tax consequences depend on the type of income, the place of service provision, and the international convention.
• Sanctions, export controls, and AML checks must be conducted prior to signing and payment.
• The procedure for accepting works or goods must create sufficient primary documents.
• Professional preparation of the contract reduces the risk of payment delays and international disputes.

Issues to resolve before signing

• the legal status and authority of the counterparty;
• the subject, country of execution, and economic substance of the transaction;
• currency, bank details, and payment schedule;
• taxes, withholding tax, VAT, and documents for the convention;
• applicable law and competent court or arbitration;
• sanctions, export control, and prohibited jurisdictions;
• the form of signing, language, and the legal force of electronic documents.

Payments, currency control, and banking documents

The bank checks whether the payment complies with the terms of the contract and the provided documents. Therefore, the subject, invoice, act, transport, or other confirmations must be coordinated with each other. A vague description of “consulting services” without a result and period often provokes additional inquiries.

The contract should define who pays the bank commissions, what is considered the day of payment, whether payment by a third party is allowed, as well as the consequences of currency restrictions or delays by the correspondent bank.

Taxes and the risk of a permanent establishment

Payment to a non-resident may require the deduction of tax on income sourced in Ukraine. An international convention can reduce the rate, but usually, a certificate of residence and fulfillment of other conditions are required.

If a non-resident actually conducts business through people or a permanent place in Ukraine, a risk of a permanent establishment may arise. The contract should not mask the real model, as tax analysis evaluates facts.

Key risks of an international contract

Court or international arbitration

For an international agreement, it is necessary to evaluate where the counterparty’s assets are located and where the decision will actually be enforced. A national court may be cheaper, but the decision will have to be recognized in another country. Arbitration provides a neutral forum, but requires a correct arbitration agreement and higher initial costs.

The clause must specify the institution or rules, the place of arbitration, the number of arbitrators, and the language. The wording “disputes are resolved by international arbitration” decides almost nothing useful.

Contract preparation procedure

1. Verification of the counterparty, their jurisdiction, beneficiaries, and authority.
2. Tax and currency analysis of planned payments.
3. Selection of applicable law and dispute resolution mechanism.
4. Preparation of the contract text and a set of primary documents.
5. Support during negotiations, signing, and the first payment.

Conclusion

A contract between a resident and a non-resident is the center of an international operation. It must be understandable not only to the parties but also to the bank, tax advisor, auditor, and future arbitrator.

“Prikhodko & Partners” support foreign economic contracts from verifying the counterparty to the tax structure, banking documents, and dispute resolution. This helps the business receive payment, confirm expenses, and avoid a situation where a good commercial project stalls due to a poorly drafted contract. Entrust the development of international agreements to specialists!