PAYMENT OF DIVIDENDS FROM A NON-RESIDENT

What are dividends?

Let’s take a closer look at such a concept as dividends.

Dividends are a part of the profit of a joint-stock company or other business entity, which is distributed among shareholders, participants according to the number and type of shares and shares in their possession.

Dividends can be received from resident joint-stock companies and limited liability companies, as well as from non-resident companies. In this context, I would like to focus on the issue of paying dividends from a non-resident.

What is a non-resident?

According to the rules of the PKU, a non-resident company is a foreign company that is registered and formed in accordance with the legislation of other countries and, accordingly, their branches, representative offices and other separate divisions located in the territory of Ukraine are registered, accredited or legalized in accordance with the legislation of Ukraine.

Dividends are usually paid once a year at the end of the financial year from the net profit of the non-resident company. An exception, for example, is the payment of so-called interim dividends (interim dividends) under the laws of Cyprus.

To distribute and pay dividends, it is necessary to prepare appropriate audited financial statements and to approve such distribution by an appropriate resolution.

For the beneficiary or shareholder of the company to be able to receive dividends to his account, it will be necessary to submit the above-mentioned documents to the bank as documents confirming the transaction.

What is the procedure for taxation of dividends?

As for the procedure for taxation of dividends, it is provided for by the PKU and it should be noted that income in the form of dividends is included in the annual Declaration on property status and income. The deadline for submitting the declaration is May 1 of the current year which follows the report.

Income in the form of dividends from a non-resident is taxed at a rate of 9%. If you want to lower the tax rate on dividends, there is good news, and it consists in the fact that Ukraine has signed and ratified treaties on the avoidance of double taxation with most foreign countries.

In such a case, the tax-paying individual shall enter the amount of such reduction with an indication of the reasons in his annual declaration of assets and income.

In addition, a military tax of 1.5% must be paid. In case of failure to submit the Declaration on property status and income within the prescribed period, the natural person-taxpayer bears the responsibility established by the Tax Code of Ukraine.

What problems can arise when paying dividends from a non-resident?

For example, distributions from a Scottish LP are not treated as dividend payments for our tax purposes. Also, to the attention of all citizens of Ukraine who have currently left during martial law and are abroad and before that.

Upon compliance with certain conditions, our citizens acquired the status of tax residents of other countries, however, it should be noted here that even if you no longer consider yourself a tax resident of Ukraine, our State Tax Service thinks otherwise.

A priori, all citizens of Ukraine are tax residents of Ukraine, because there is currently no procedure for removal from tax residency of Ukraine. Therefore, when paying dividends from a non-resident in favor of a beneficiary or shareholder of a Ukrainian, there is a risk of double taxation of such income.

Peculiarities of agreements on avoidance of double taxation

In order to take advantage of the preferential provisions of treaties on the avoidance of double taxation, citizens of Ukraine, in order to obtain the right to credit taxes and fees paid outside Ukraine, are obliged to obtain from the state body of the country where such income (profit) is received, authorized to pay such tax :

• Certificate on the amount of tax and fee paid;
• Information about the base and/or object of taxation.
• The above-mentioned certificate must be legalized in accordance with the procedure established by law (by affixing an apostille).

Contact us, and we will gladly advise you and provide answers to all urgent questions regarding the taxation of income with a source of origin outside of Ukraine.