Ukraine-Singapore DTAA: Double Tax Avoidance Agreement

The following types of taxes are covered in the DTAA:

In Ukraine

• Income tax
• The tax on profits of enterprises

In Singapore

• Income tax

According to Article 4, the term "resident of a country" means any individual, company or other legal entity that, under the laws of that country, is liable for tax in that country due to his or her domicile, residence, place of management, or place of incorporation.

If according to the above definition, an individual taxpayer can be considered as a tax-resident of both country, the taxpayer’s residency status will be determined in accordance with the following rules in order of priority:

• Location of the permanent home.
• If an individual has a permanent home available in both countries, the location of his or her vital interests (personal and economic relations) is taken into account to determine residency;
• In case above factors fail to determine the residency status, an individual will be regarded as a resident of the country in which he or she has a habitual abode;
• If a person has a habitual abode in both countries or in neither of them, he or she will be considered as a resident of the country of which he or she is a national;
• If none of the above rules determines residency, the competent authorities of the countries will settle the question by mutual agreement.

Dividends are traditionally taxed in the country of a recipient's residency. However, in some situations, they may also be taxed in the country of residency of the company that is paying the dividends.

Under the DTAA, if the company is a resident of Country A and the beneficial owner of the dividends is a resident of Country B, the dividend tax shall be charged by country B and it shall not exceed:

• 5% of the gross amount of the dividends if the recipient is a company which owns directly at least 20% of the capital of the company paying the dividends;
• 15% of the gross amount of the dividends in all other cases.

However, if the beneficial owner of the dividends is the Government, the Central Bank, or any other government institution of Country B then the dividends paid by a company which is a resident of Country A shall be taxable only in Country B. This provision overrides the other rules described above.

Please note that the above provisions will not be applicable if the recipient has a permanent establishment (PE) in the source country of the dividends (i.e. Country A) and such dividends are paid for shares of the permanent establishment or otherwise effectively connected with that establishment. Such dividend income will be treated as Business Profits or Independent Personal Services and subject to tax treatment in that country (i.e. Country A).

The approach for avoiding double taxation of interest income is similar to that for dividend income described above. Interest is taxed in the country where the recipient of the interest income resides (i.e. Country B). However, such interest may be taxed in the country in which it arises (i.e. Country A).

If the beneficial owner of the interest income is a resident of Country B, the tax charged by Country A shall not exceed 10% of the gross amount. Without the treaty, the withholding tax rate for interest income paid to non-residents is 15% in Singapore and Ukraine. Under the DTAA, the withholding tax on interest in both countries is only 10%.

Without regards to the previous paragraph, interest paid by a company which is a resident of Country A shall be taxable only in Country B if the beneficial owner of the interest income is the Government, the Central Bank, or any other government institution of Country B.

Royalties are payments to owners of property for use of that property over a specific period of time. Royalties usually involve payments for the right to use intellectual property — such as copyrights, patents, and trademarks. As a general rule, royalties are taxed in the country of the recipient's residency i.e. Country B.

According to the DTAA, royalties can also be taxed in the country where they arise i.e. Country A. If the recipient is a resident of the other country i.e. Country B, the tax so paid to Country A shall not exceed 7.5% of the gross amount of the royalties. Without the treaty, the withholding tax rate on royalties paid to non-residents in Singapore is 10% while in Ukraine, the tax rate is 15%.

These rules are not applicable if the recipient of the royalty has a PE in the country in which the payer resides (i.e. Country A) and the royalty payment is attributable to that permanent establishment. Such income from royalties will be treated as Business Profits or Independent Personal Services Income in Country A.

Capital gains derived from the alienation of immovable property situated in a country are taxed in that country. Therefore, gains from selling movable property that is part of a permanent establishment which an enterprise of Country B has in Country A may be taxed in Country A.

Please take into consideration that capital gains derived by an enterprise of a country from the sale of ships or aircraft operated in international traffic shall be taxable only in that country.

Finally, capital gains acquired from selling any property other than described above, shall be taxed in the country where the seller is resident.

Double taxation occurs when the same income or capital is taxed by two countries because the relevant funds flow through the financial systems of both countries. Such double taxation is disadvantageous to the taxpayer and therefore act as a disadvantage to cross-border transactions.

The Singapore-Ukraine Double Tax Treaty aims to prevent the burden of double taxation by providing specific tax reliefs in one or both countries.

In Ukraine

If a resident of Ukraine receives income which may be taxed in Singapore, Ukraine will allow a deduction from the tax due on the income of that resident in the amount equal to the tax paid in Singapore. However, such deduction shall not exceed the local country’s tax as computed before the deduction; in other words, the taxpayer can not have a net negative tax.

In Singapore

If a resident of Singapore receives income from Ukraine which may have been taxed in Ukraine, Singapore shall allow the Ukrainian tax paid, whether directly or by deduction, as a credit against similar local Singaporean tax.

In case of the dividend paid by a Ukraine-resident company to a Singapore company that owns 10% or more of the share capital of the Ukrainian company, the credit shall take into account the amount of the Ukrainian tax paid by that company on the portion of its profits out of which the dividend is paid.