Control over non-residents (representative offices) under conditions of the martial law

Press service of the State Tax Service of Ukraine, published 09 August 2022 at 09:47 Chapter: New about taxes (news)

State Tax Service of Ukraine to ensure interaction with taxpayers, informs about specifics of monitoring non-residents (representative offices) in connection with introduction of the martial law in Ukraine.

Registration of non-residents as taxpayers

According to requirements of Paragraph 64.5 Article 64 and Article 133 of the Tax Code of Ukraine (hereinafter – Code), non-residents are obliged to register in regulatory authorities (with assignment of 9 significant numbers) if they:

- carry out activities in Ukraine through separate divisions;

- purchase real estate or obtain property rights to such property in Ukraine;

- open accounts in Ukrainian banks;

- carry out business activities in Ukraine through the permanent representative offices;

- acquire ownership right of an investment asset, defined in Clauses 3 – 6 of Sub-paragraph “e” of Sub-paragraph 141.4.1 Paragraph 141.4 Article 141 of the Code, to another non-resident who does not have the permanent representation in Ukraine.

In the last two cases, the non-resident is registered as an income tax payer.

Reminder! Non-residents are income tax payers in case of conducting business activities on the territory of Ukraine through the permanent representative office (which can be either a separate subdivision of non-resident or meet characteristics specified in Sub-paragraph 14.1.193 Paragraph 14.1 Article 14 of the Code).

Audits of non-residents’ activities in Ukraine

Audits of non-residents (foreign companies, organizations) that carry out economic activities on the territory of Ukraine and that should have been registered according to procedure, established by Article 64.5. 64 of the Code, but who did not fulfill specified requirements for registration within three months from the entry into force of changes and with respect to their separate divisions (including permanent representative offices) that are registered may be appointed from July 1, 2021.

Basis for conducting unscheduled audit is Sub-paragraph 78.1.22 Paragraph 78.1 Article 78 of the Code – obtaining information indicating that the non-resident is conducting economic activity through the permanent representative office on the territory of Ukraine, according to requirements of Sub-paragraphs 14.1.193 Paragraph 14.1 Article 14 of the Code, without tax accounting.

Moratorium on this type of audits is effective from 18.03.2021 until termination or cancellation of the martial law (Paragraph 52² and Paragraph 69.2 Article 69 of Sub-section 10 of Section XX "Transitional provisions" of the Code).

Liability

In case that it is established that the non-resident is carrying out activities without tax accounting, the controlling body compiles audit act.

On the basis of such act:

- decision can be made to register such non-resident in Ukraine without the non-resident's application and receipt of objection to the audit act (Paragraph 64.5 Article 64 of the Code);

- fines in the amount of 100 thousand UAH may be applied (Paragraph 117.4 Article 117 of the Code);

- non-resident’s property may be seized (Sub-paragraph 94.2.9 Paragraph 94.2 Article 94 of the Code), administrative seizure of property is terminated after the non-resident is registered for tax purposes on the basis of audit act (Sub-paragraph 94.19.10 Paragraph 97.19 Article 94 of the Code).

However, there is a moratorium on the application of fines according to requirements of Paragraph 52¹ of Sub-section 10 Section XX "Transitional Provisions" of the Code.

At the same time, non-resident who started economic activity through permanent representative office before registration in the controlling body is considered to be evading taxation, namely income tax.

Therefore, all profits received by non-resident are considered hidden from taxation (Paragraph 133.3 Article 133 of the Code).

It should be remembered that permanent representative offices of non-residents, which were registered as taxpayers (including corporate income tax) in periods until January 1, 2021 remain taxpayers of such taxes according to requirements of the Code before registration as taxpayers (including corporate income tax) of relevant non-residents (Paragraph 60 Sub-section 10 Section XX "Transitional provisions" of the Code).

Information is provided taking into account the laws on amendments to the Tax Code of Ukraine № 2118-IX as of 03.03.2022 (entered into force on 03.07.2022), № 2120-IX as of 15.03.2022 (entered into force on 17.03.2022), № 2142-ІХ as of 24.03.2022 (entered into force on 05.04.2022), № 2173-IX as of 01.04.2022 (entered into force on 16.04.2022), № № 2260-ІХ as of 12.05.2022 (entered into force on 27.05.2022).