Taxation of the shareholders incomes

Taxation of shareholders’ incomes is carried out as per the procedure defined by item 7.8, Clause 7 of the Law of Ukraine «On taxation of companies’ profit» No. 334/94-BP, namely: resi-dent issuer, having taken the decision on dividend payment to its shareholders, charges and pays to the budget an advance payment of profits tax, which is to be paid to the budget before dividends payment or simultaneously with it, at the rate fixed by item ÞË of Clause 10 of this Law (25%) which is charged for amount of dividends to be paid; at that, the amount of this payment is not to be reduced by the amount of this tax.

As per sub-item 9.3.1, item 9.3, Clause 9 of the Law of Ukraine «On taxation of natural per-sons’ incomes» No. 889-IV, the resident issuer becomes the fiscal agent of its shareholders. It must withhold the tax on natural persons’ income (15% according to item 7.1, Clause 7, Law of Ukraine No. 889-IV) from the charged amount, which is to be paid to the budget simultaneously with dividends payment (sub-item 8.1.2, item 8.1, Clause 8, Law of Ukraine No. 889-IV).

With respect to taxation of dividends to be paid to non-residents, the Law of Ukraine «On taxation of companies’ profit» does not provide for any exceptions. These amounts are to be taxed in the usual way. It means that, concerning the taxation of dividends to be paid to non-residents (both natural persons and legal entities), the company-issuer shall follow the provisions of item 7.8 of the Law of Ukraine «On taxation of companies’ profit». Thus, the company that takes deci-sion on dividends payment to a non-resident, shall make the advance payment of profits tax at the rate of 25% from the amount of dividends to be paid (at that, the amount of dividends is not to be reduced by the amount of this advance payment). Continuation of the dividends taxation proce-dure depends on whom (natural person or legal entity) these dividends are to be paid, as well as on whether there is an agreement between Ukraine and the country of non-resident on prevention of double taxation.

If such an agreement exists, the non-resident shall confirm his non-residential status by the respective certificate, and the dividends taxation is carried out according to this international agreement. If there is no agreement, or if the non-resident has not confirmed his status, the dividends taxation is performed as per the procedure defined by Clause 13 «Taxation of non-residents» of the Law of Ukraine «On taxation of companies’ profit». It means that, together with advance payment (at the rate of 25%) from the dividends amounts to be paid to non-residents – legal entities, the company-issuer must also withhold the tax at the rate of 15% and pay this tax simultaneously with dividends payment (item 13.2 of the Law of Ukraine «On taxation of companies’ profit». If the non-resident is a natural person, the company-issuer must withhold the tax at the rate of 15% from the paid dividends amount in accordance with sub-item 9.11.3, item 9.11, Clause 9 of the Law of Ukraine «On taxation of natural persons’ incomes».