On June 15, 2021, the Verkhovna Rada of Ukraine ratified the Protocol Amending the Convention between Ukraine and the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital (hereinafter referred to as the “Convention)”.

The protocol amends the tax benefit rules for Ukrainian income of residents of the Netherlands.

What exactly will change?

1. Dividends

A 0% tax on dividends from Ukraine will be applied, provided that the beneficial owner of the dividends is:

1. a company whose investment into the capital of the Ukrainian company paying dividends is guaranteed or insured by the Netherlands, the central bank or any agency or body owned/controlled by the state of the Netherlands;
2. the pension fund of the Netherlands.

In other instances, a 5% tax will be applied on dividends if the beneficial owner of the dividends is a company that is a resident of the Netherlands that directly owns at least 20% of the capital of the Ukrainian company paying the dividends.

If this condition is not met, the standard rate of 15% will be applied.

2. Interest income

A 0% tax will be applied to the interest income from bonds, debentures or other similar obligations issued by Ukraine, the National Bank of Ukraine or local authorities, as well as to interest to be paid to the Netherlands pension fund and loans guaranteed or insured by Ukraine.

5% tax will be withheld in Ukraine if the recipient of an interest income is the beneficial owner of such interest and a resident of the Netherlands.

3. Royalty

5% tax will be applied in Ukraine to the royalties paid for the use or right to use any copyright to scientific works, any patent, trademark, design or model, secret formula or process, or for information relating to industrial, commercial or scientific experience.

10% tax will be applied to the payment of royalties if they are paid for the use or right to use any copyright to literary or artistic works (including motion pictures and pictures or films intended for radio or television).

4. Other important amendments

Business purpose

Tax benefits (advantages) stipulated by the Convention are not granted when, taking into account all relevant facts and circumstances, it can be reasonably concluded that obtaining such a benefit was one of the main objectives of the agreement or transaction (including the structuring of the investment in Ukraine), which has either directly, or indirectly created the grounds for such benefit.

At the same time, the Ministry of Finance of Ukraine, as the competent authority, must consult with the competent authority of the Netherlands before rejecting the grant of a tax (benefit) advantage in Ukraine.

Mutual agreement procedure

The dispute settlement procedure governing the application of the Convention’s provisions has been amended. If a person considers that the actions of one or both states result or will result in such person’s taxation in violation of the Convention’s provisions, he or she may, notwithstanding the measures provided for by the domestic laws of such states, refer his or her case to the competent authority of either state. If the states fail to reach understanding, such person is entitled to refer the unresolved issue to arbitration.

Information exchange

It is envisaged that the information is provided at the request of the competent authority and is relevant to the implementation of the Convention’s provisions or the administration or collection of taxes of any kind, pursuant to the domestic laws. There are certain requirements set with respect to the provision and use of such information.

Collection of taxes in another state

The procedure for assisting in enforcement of tax claims in another state has been amended. In such instances, the other contracting state shall take measures to ensure payment of taxes in respect of a tax claim in accordance with the provisions of its laws as if such tax claim was a tax claim of that other contracting state.

Thus, the Ukrainian tax authorities will be able to collect taxes in a more efficient manner if they have information that the residents of Ukraine have income or property in the Netherlands, but failed to declare or pay taxes on such income or property in Ukraine.

Once the Netherlands has completed all procedures in accordance with its domestic laws that are necessary for the entry into full force and effect of the protocol, these amendments to the Convention may become effective as early as the autumn of 2021.

The Dentons team has analyzed all current international conventions for the avoidance of double taxation, the rules of their application, and created a chat bot, which provides free information on current tax rates by types of income: https://t.me/DentonsTaxBot. @DentonsTaxBot is constantly adding new information and it will keep you posted about the most important news and changes in Ukrainian tax legislation.