On 3 August 2022, the State Tax Service (STS) of Ukraine explained the rights and obligations of taxpayers and supervisory authorities in matters of international taxation during martial law, taking into account the Ukraine- Russia war.

Statute of limitations

According to requirements of Paragraph 102.9, the expiration of the statute of limitations for a period of martial law, a state of emergency for payers, and the supervisory authority is suspended. As follows, the statute of limitations regarding the non-resident’s income taxation has been suspended since 18 March 2020.

Tax audits of non-residents’ income

During martial law in Ukraine, tax audits are not started, and the audits that have started are stopped, except for certain exceptions.

It should also be noted that for audits that have been completed, deadlines for submitting objections to the audit act and appealing tax notifications-decisions are also suspended for a period of martial law in Ukraine.

At the same time, due to audits stopped according to the above-mentioned norms of the Code, deadlines for conducting such audits are also suspended.

Single tax at a 2% interest rate

According to the requirements of Paragraph 9, the taxpayers had the opportunity to voluntarily change the taxation system from the general to Group III of the single tax at a 2% income rate.

However, according to Paragraph 297.5, single taxpayers who make payments from income of non-residents with a source of origin from Ukraine, calculate and pay tax on this income, and submit reporting in the manner, amount, and terms established by Section III of the Code.

Withholding tax reporting obligations for non-residents’ income

According to requirements of Paragraph 103.9 Article 103, reporting to the tax authority on taxes withheld and paid to the budget from the income of non-residents is the responsibility of persons who pay a such income. Such reporting is the PN annex to the corporate income tax declaration.

Sub-paragraph 141.4.2 Paragraph 141.4 Article 141 of the Code stipulates that persons who submit reporting are residents, including individuals-entrepreneurs, individuals who conduct independent professional activities, or business entities (legal entities or individuals-entrepreneurs) who chose the simplified taxation system or other non-residents who conduct business through a permanent representative office on the territory of Ukraine, who make any payment in favor of non-resident or person authorized by him/her from income with a source of its origin in Ukraine received by such non-resident (including to non-resident accounts made in the national currency).

The STS also gives exceptions for certain cases during the martial law period.

Controlled foreign companies (CFCs)

A foreign company will be considered a CFC in Ukraine if:

• share that tax resident of Ukraine (legal entity or individual) owns in such company is more than 50% or more than 10%; or
• tax resident of Ukraine (legal entity or individual) exercises “actual control” over such foreign companies (independently or together with other tax residents of Ukraine).

The specifics of the application of provisions on the income taxation of the controlled foreign companies during the transition period are established, in particular, the first reporting (tax) year for reporting on controlled foreign companies is 2022. Controlling persons have a right to submit a report on controlled foreign companies for 2022 to the supervisory authority at the same time as submitting annual property and income tax declaration or corporate income tax declaration for 2023 with the inclusion of the adjusted income of the controlled foreign company, subject to taxation in Ukraine, specified in such report, to the indicators of relevant declarations for 2023.

Individual – resident of Ukraine or legal entity – resident of Ukraine sends to the supervisory authority a Notification of acquisition or termination of participation in controlled foreign companies within 60 days from the day of such acquisition (start of actual control) or alienation (termination of actual control). The obligation of such submission remains to this day.

Any supervisory authority, other state authority, bank, or financial institution that has discovered facts indicating that an individual – resident of Ukraine owns a share in the foreign legal entity, sends the Notification of this to the State Tax Service by electronic communication means not later than five working days from the day of discovery of the specified facts.