New opportunities for business cooperation between Luxembourg and Ukraine

May 29, 2018

ITR's Luxembourg correspondent Deloitte examines the Luxembourg-Ukraine tax treaty, highlighting the available benefits for businesses.

The 1997 tax treaty between Luxembourg and Ukraine entered into effect on January 1 2018, which should facilitate business and economic cooperation between the two countries. The treaty and the accompanying protocol provide for the following reduced withholding tax rates on dividends, interest and royalties paid by one of the contracting states to a resident of the other contracting state:

Dividends: A 5% withholding tax applies to dividends paid to a company that is deemed to be the beneficial owner of the income and that holds at least 20% of capital of the company paying the dividends; otherwise, the rate is 15%.
Interest: A 5% withholding tax rate applies to interest paid on a loan granted by a bank or other financial institution provided the recipient of the interest is considered the beneficial owner of the income; the rate on all other loans is 10%.
Royalties: A 5% rate applies to royalties relating to patents, trademarks, designs or models, plans, secret formulas or processes, or for information (know-how) concerning industrial, commercial or scientific experience paid to a beneficial owner. The rate is 10% where the royalties are paid in respect of a copyright of literary, artistic or scientific work and are received by a beneficial owner.

Ukraine is also expected to sign the OECD multilateral instrument (MLI) in the near future, and once the MLI becomes effective, the treaty between Luxembourg and Ukraine will be amended to incorporate the tax avoidance measures envisaged in the MLI to the extent both countries designate the treaty as being covered by the MLI.

In addition, Ukraine has implemented several reforms in recent years and has substantially strengthened its economic ties with the EU, such as by signing the association agreement with the EU that took effect on September 1 2017, which was an important milestone for the country to follow the pro-European course and remove trade barriers with the EU. Most recently, the Chamber of Commerce of the Grand Duchy of Luxembourg, together with AWEX (the Walloon Export and Foreign Investment Agency) has organised a multi-sectoral trade mission to Ukraine where representatives participated in business-to-business meetings and discussed opportunities for further cooperation between Luxembourg and Ukraine.