According to Law No.466-XI and the Protocol to the Ukraine-Cyprus double tax treaty (“UA-CY DTT”) gains received from the sale of Ukrainian business deriving more than 50 per cent of its value directly or indirectly from immovable property situated in Ukraine are subject to a 15% Ukrainian WHT.

This rule should not apply in cases where the immovable property from which the business derives its value is "immovable property in which the business is carried on" in accordance with paragraph 5 of Article 13 of the UA-CY DTT and the relevant capital gain should be exempt from tax in Ukraine.

However, the Ukrainian tax authorities and the Ministry of Finance of Ukraine in their recent clarifications disagreed with this position and asserted that such gains are still taxable in Ukraine in accordance with paragraph 6 of Article 13 of the UA-CY DTT.

Therefore, if you contemplate selling Ukrainian business using Cypriot structures and expect the capital gains to be exempt from taxation in Ukraine according to paragraph 5 of Article 13 of the UA-CY DTT, there is a risk that the Ukrainian tax authorities will challenge this approach.

How KPMG may assist:

• We will analyse the applicability of the WHT exemption in respect of your specific case.
• We will help substantiate the application of paragraph 5 of Article 13 of the UA-CY DTT to the contemplated transaction and justify the exemption of capital gains from taxation in Ukraine. 

Oleksandr Boboshko, Head of International Corporate Tax Group KPMG in Ukraine