As you know, the Act of 24.05.2012, #4834-VI made some changes to the Tax Code of Ukraine, which determined the order of claiming tax losses. According to these changes during the 2012-2015 period, taxpayers with income of more than 1 million hryvnia in 2011 will be entitled each year to take into account not more than 25% of the negative value of the object of taxation (tax loss) income tax, accumulated by January 1, 2012.
Stating their position regarding these changes in a letter dated 09.08.2012, # 320/0/71-12/15-1217 tax authorities have concluded that these provisions should also extend to negative financial results of transactions with securities, corporate rights and derivatives. This in particular means that in case of sale of shares or corporate rights of the Ukrainian legal entity in the annual period which followed the period of acquisition, the company, which is the owner of such shares or corporate rights could reduce the revenue received from the sale by only 25% of their value, which was paid on acquisition. If the company will not perform any operations with all its shares or corporate rights through 2015, it would lose the possibility to claim negative value all together.
Despite the dubious legality of this position of tax authorities, the letter remains in effect. Apparently, tax authorities are also not concerned regarding the adoption of the law on amendments to the Tax Code of Ukraine dated July 5, 2012, #5083-VI, which made it possible, in particular, to fully claim outstanding amounts of the negative value of taxation items after 2015.
The situation is even worse with calculation of the tax on the repatriation, which is subject to tax as income from trading securities or other corporate rights. After all, art. 150 of the Tax Code provides for the right to carry a negative value of the object of taxation just for residents of Ukraine. Thus, in order to collect tax on the repatriation the income of non-residents from the sale of previously acquired by them shares or corporate rights of the Ukrainian legal entity cannot be reduced by the amount of the acquisition of such shares or corporate rights.
In light of the above explanatory practice of the tax authorities, as well as certain provisions of the Ukrainian tax legislation it is becoming increasingly important to structure the ownership of Ukrainian businesses by using foreign holdings. By utilizing low-tax jurisdictions one can afford to minimize tax costs associated with the sale of business (should the transaction take place abroad - see chart below). Starting on August 12, 2012, an effective structuring of Ukrainian business ownership also helps reduce tax rate on personal income on dividends originating outside Ukraine to 5% (compared to previous rate of 15% (17%). This change will ensure direct participation of foreign holding companies with no additional tax burden on final beneficiaries.
Selling Ukrainian business abroad
Stating their position regarding these changes in a letter dated 09.08.2012, # 320/0/71-12/15-1217 tax authorities have concluded that these provisions should also extend to negative financial results of transactions with securities, corporate rights and derivatives. This in particular means that in case of sale of shares or corporate rights of the Ukrainian legal entity in the annual period which followed the period of acquisition, the company, which is the owner of such shares or corporate rights could reduce the revenue received from the sale by only 25% of their value, which was paid on acquisition. If the company will not perform any operations with all its shares or corporate rights through 2015, it would lose the possibility to claim negative value all together.
Despite the dubious legality of this position of tax authorities, the letter remains in effect. Apparently, tax authorities are also not concerned regarding the adoption of the law on amendments to the Tax Code of Ukraine dated July 5, 2012, #5083-VI, which made it possible, in particular, to fully claim outstanding amounts of the negative value of taxation items after 2015.
The situation is even worse with calculation of the tax on the repatriation, which is subject to tax as income from trading securities or other corporate rights. After all, art. 150 of the Tax Code provides for the right to carry a negative value of the object of taxation just for residents of Ukraine. Thus, in order to collect tax on the repatriation the income of non-residents from the sale of previously acquired by them shares or corporate rights of the Ukrainian legal entity cannot be reduced by the amount of the acquisition of such shares or corporate rights.
In light of the above explanatory practice of the tax authorities, as well as certain provisions of the Ukrainian tax legislation it is becoming increasingly important to structure the ownership of Ukrainian businesses by using foreign holdings. By utilizing low-tax jurisdictions one can afford to minimize tax costs associated with the sale of business (should the transaction take place abroad - see chart below). Starting on August 12, 2012, an effective structuring of Ukrainian business ownership also helps reduce tax rate on personal income on dividends originating outside Ukraine to 5% (compared to previous rate of 15% (17%). This change will ensure direct participation of foreign holding companies with no additional tax burden on final beneficiaries.
Selling Ukrainian business abroad