Purchase of corporate rights by a resident from a non-resident

1. Taxation of the transaction of purchase and sale of corporate rights
2. Determining the amount of taxable profit.
3. Additional procedures for the purchase of corporate rights from a non-resident

For the purposes of this article, the first thing to note is that a non-resident can be both an individual and a legal entity. The source base, which must be guided by the taxation of the operation of the purchase and sale of corporate rights (since such an operation concerns the receipt of income on the territory of Ukraine), is first of all the Tax Code of Ukraine.

And since a non-resident participates in this operation, bilateral agreements between Ukraine and the non-resident’s country of residence are also valid. At the same time, the provisions of bilateral agreements prevail over the PKU, if the provisions of these two acts differ. In this case, the non-resident must also provide a certificate confirming residency in another country.

Taxation of the transaction of purchase and sale of corporate rights

According to the PKU, a tax rate of 15% is applied to the non-resident’s profit from operations on the sale of corporate rights of resident legal entities, if the seller is a non-resident legal entity.

If the seller is a non-resident individual, the tax rate will be 18% income tax and 1.5% military levy.

Determining the amount of taxable profit

Profit is considered the difference between the income from the sale of corporate rights and the cost that was spent on the acquisition of such an asset, while such cost must be documented.

If the non-resident does not provide such supporting documents, the cost of the transaction to alienate corporate rights is subject to taxation. Such tax is paid to the budget at the time of receipt of payment from the sale unless otherwise specified in a bilateral agreement.

Importantly! Tax is withheld and paid by the buyer as the tax agent

There may not always be a profit from such an operation, for example, the sale of corporate rights may be at nominal value, i.e. at the same cost as their purchase, or at a loss, i.e. at a price lower than the cost of purchase. In this case, there will be no taxation.

However, in the second case, there is a risk that the tax authorities will recognize the profit in “kind” from the buyer of corporate rights in favor of the new investor.

For a resident-buyer, the purchase transaction of corporate is legally subject to taxation. Procedurally, such an operation will not differ from the purchase of rights from a resident.

Additional procedures for the purchase of corporate rights from a non-resident

It is worth emphasizing a few more points.

If the total assets of the LLC, in which the share is alienated, exceed UAH 50 million, or if the share is alienated, which ensures the transfer of more than 50% of the votes in the highest governing body of the LLC, it is necessary to obtain consent for the alienation of corporate rights from the Antimonopoly Committee of Ukraine.

Also, the purchase of corporate rights from a non-resident may lead to the need to obtain new permits or licenses, if the activities of the LLC require them.

If you plan to buy corporate rights from a non-resident, we recommend that you consult the law firm “Prikhodko and Partners”, which will help you conduct a legal analysis to assess all risks and potential liabilities.