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Expert in corporate and international corporate law. Has extensive experience in supporting the acquisition of financial licenses in Ukraine, as well as business incorporation in the EU, the United Kingdom, Switzerland, the UAE, and key Asian jurisdictions.
Transfer of corporate rights to a foreign holding company
In the modern economy, where every strategic decision immediately responds to the competitiveness of the business, the issue of structuring corporate rights acquires special importance.
For Ukrainian entrepreneurs, the creation or connection of a foreign holding has long become not just a sign of “internationality”, but a tool for strategic growth: entering foreign markets, improving investment attractiveness, protecting assets from local risks, forming a professional corporate architecture.
At the same time, regulatory requirements, bank compliance, international tax standards and strict transfer pricing rules turn the transfer of corporate rights into a complex legal process, where a mistake or carelessness at the planning stage and choosing a mechanism for implementation can cost more than the procedure itself and can lead to potentially significant tax assessments, recognition of the transaction as fictitious and other unpleasant legal consequences.
That is why the correct transfer of corporate rights to a non-resident holding company is a critical task that requires not only legal literacy, but also strategic vision. The lawyers of the company “Prikhodko and Partners” take into account all possible risks in advance and provide the client with the necessary mechanisms in the legal sphere and not to fall into the trap of the deceptive simplicity of the transaction of selling corporate rights to their own foreign holding company.
Transfer of corporate rights to a foreign holding company: hidden issues
For Ukrainian business with its tradition of minimal authorized capitals, the classic mechanism of transferring a share – purchase and sale – looks logical and simple. However, behind the deceptive simplicity lies a real financial and legal “minefield”.
At first glance, it may seem that selling a share to your own holding company is a simple and transparent mechanism without hidden threats. Both the holding company and the operating company are controlled by the same person, there is no actual alienation of assets, the parties agree on a technical nominal sale price. It would seem – what could go wrong?
But this is where the main paradox lies: in such transactions, the law requires the application of not the nominal, but the usual (market) price, which instantly creates the obligation to pay tax on “income” that was never actually received.
The problem is that tax legislation looks at the situation not through the eyes of business, but through the eyes of the regulatory authority. And that is why the mechanism, which in the logic of the entrepreneur is an internal “transfer of an asset within its own structure”, for the legislator looks like a full-fledged sale of an investment asset to a related non-resident person. And therefore, it is subject to taxation as a real market transaction.
According to subparagraph 170.2.2 of the Tax Code of Ukraine, transactions for the sale of investment assets in favor of a related non-resident are taxed based on the usual price. The application of the usual price means that the income of an individual selling a share will be determined not by the conditional contractual amount, but by the real market valuation of the company.
The result is 18% personal income tax and 5% military duty on the difference between the sales and market value. This is how the same “paper income” appears, which no one received, but from which the state expects taxes.
Thus, the business not only does not optimize the structure, but also spends significant additional funds. In fact, the owner taxes himself.
For the business owner, this creates a paradoxical and often emotionally painful situation: he does not receive money, but is obliged to pay the state an amount that can significantly affect liquidity or even force the restructuring to be postponed or canceled. There are not infrequent cases when the tax burden in such a transaction exceeded the budget of the investment project or the amount of reinvested capital, which made the restructuring economically absurd.
In addition, even if there is a desire to formally register the sale, the business faces operational barriers: the need to prove the market valuation, compliance checks by foreign banks, the complexity of currency control, the possible blocking of the payment by financial monitoring. All this makes the transaction not only expensive, but also almost unpredictable.
That is why the team of specialists of “Prikhodko and Partners” in its consultation draws attention not to the fact that the transfer of corporate rights to a foreign holding is not a technical operation, but an element of complex tax structuring, which requires an individual strategy and a deep analysis of the regulatory requirements of both Ukrainian and international law.
Transfer of corporate rights to a foreign holding: potential solutions
Despite the above, it is important to understand: the problem is not in the weakness or excessive rigidity of Ukrainian legislation. The normal price mechanism was created specifically for real market sales to foreign investors, and not for internal group structuring. It works correctly – it is simply not suitable for this specific task. That is why the classic sale of shares is a mistaken strategy that creates artificial tax liabilities and destroys the economic logic of the transaction.
In the situations our specialists work with, owners do not need intermediary schemes or risky structures, but legal, transparent and relevant mechanisms provided for by Ukrainian law. This is especially important for businesses that want to not just transfer to a foreign holding, but to create a high-quality corporate architecture: prepare for attracting venture capital investments, the entry of a strategic partner, international expansion or asset protection in the event of regulatory and geopolitical risks.
That is why the approach of the “Prikhodko and Partners” team is not based on “technical solutions”, but on strategic support that takes into account tax regulations, requirements of international corporate law, the position of regulators and expectations of investors. We focus on legal instruments for transferring corporate rights that do not create fictitious income and do not generate an unnecessary 23% tax liability.
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