Minister of Finance Oleksandr Danyliuk signs the agreement between Ukraine and Luxemburg on the avoidance of double taxation

9/30/16

Today, Minister of Finance Oleksandr Danyliuk and Ambassador of Luxemburg to Ukraine Michelle Pranscher-Tomassini have signed the Convention on the Avoidance of Double Taxation between Ukraine and Luxemburg.

The agreement is meant to remove double taxation on the income of citizens and legal entities which is generated on the territory of both countries. To do this, Ukraine and Luxemburg have agreed to share taxation rights for certain types of income depending on its origin as well as to mutually take into account taxes paid in the respective country when calculating due taxes in another.

The Convention also stipulates the exchange of tax data in line with the current OECD standards.

What shall the Convention deliver?

- it shall create favorable conditions for investors from Ukraine and Luxemburg;
- it shall stimulate business activity;
- it shall settle international taxation issues in the bilateral relations between Ukraine and Luxemburg.

The Convention shall make it possible:
- to prevent tax evasion;
- to prevent tax discrimination;
- to create mechanisms improving cooperation between the tax authorities of Ukraine in Luxemburg by setting procedures for the settlement of disputes;
- to ensure the exchange of tax data.

The Convention sets the following tax rates for passive income:
Dividends – the general rate is 15%; 5% are applied for dividends paid to a company owning at least 20% of the shares of the company paying these dividends;
Interest rate – the general rate is 10%; 5% are applied for interest rate charged for the loan sale of industrial, commercial or scientific equipment as well as for interest rate on bank loans;
Royalty – the general rate is 10%; 5% are applied for royalty on copyrights for scientific works, patents, trademarks, secret formulas as well as for processes or information regarding industrial, commercial or scientific experience.

For information:
- the Convention between the Government of Ukraine and the Government of the Great Duchy of Luxemburg on the avoidance of double taxation and prevention of tax evasion regarding income and capital was signed in Kyiv on September 6, 1997;
- in 1998, the Ukrainian Parliament refused to ratify the Convention, since it granted tax exemptions for dividends and set the tax rate for interest rate at 2%, whereas similar conventions with most other countries set this rate at 5 to 10%;
- according to the Convention, dividends were subject to the tax rate of 5%, if the actual owner of the dividends was a company directly owning at least 20% of the capital of the company paying the dividends. 15% were applied in all other cases;
- negotiations on amendments to the Convention were started in 2007;
- to enact the amendments, the draft of the Protocol on amendments to the Convention was elaborated.

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