Ukraine and the United Kingdom to end zero-rate withholding tax for interest

Ukraine and the United Kingdom (the UK) signed the Amending Protocol (the Protocol) to the Double Taxation Convention (the UK/Ukraine DTT) on Monday, 9 October. According to the announcement made by the Ministry of Finance of Ukraine, the Protocol provides for certain significant changes in taxation rights distribution in respect of dividends, interest, and royalties paid between residents of the two states.

Please note: No official text of the Protocol has been published yet. We will keep you informed on any changes in the document’s status. This report relies on the Ministry’s announcement.

Reportedly, the Protocol will end existing withholding tax exemption regime for interest income – it will be replaced with reduced withholding tax rate of 5%.

This appears the most important change to happen since many Eurobonds offerings of Ukrainian origin have been structured throughthe UK-established issuing SPVs. The UK/Ukraine DTT is one of the few income tax treaties within Ukrainian network, which provide for withholding tax exemption for interest.

Please note that domestic Eurobond taxation relief that was introduced this year in Ukraine will not be affected by this change.

Withholding tax exemption for royalties will also be removed and replaced with the 5reduced rate.

Existing withholding tax relief for dividends will be changed in the following way:

  • reduced withholding tax rate of 5for dividends paid to a company, beneficially owning the dividends, with at least 20% shareholding control over the paying entity, will stay untouched;
  • withholding tax rate of 10% for dividends in all other cases will be increased to 15%.

Standard withholding tax rate in Ukraine is 15%.

Among other changes, amendments to be made in the Exchange of Information clause. It can be expected that the changes will align the wording of the clause with the latest version of the OECD Model Tax Convention.

The Protocol is subject to ratification procedures in both states.

Should you need any assistance regarding this report, please contact Serhiy Verlanov or Konstantin Penskoy.