Ukraine financing and holding schemes

Popular Financing and Holding Schemes for business in UKRAINE by Ivan MOVLYAK, INTERLEGAL, Associate Partner movlyak@interlegal.com.uaThe information provided herein is for general information purposes only and shall not be construed October 2011as a kind of legal/tax advice or as a guidance to follow. An additional professional advice shall beobtained for every specific situation.

Financing via loan(s) Panama Belize BVI $ Loan at X%Principal loan amount is not considered as income when received and Cyprus as expenses when repaid $ Loan at Y% Principal loan amount is not considered as income when Ukrainian received and as expenses when company repaid

Interests repayment Panama Belize BVI No taxes! $ Interests Corporate tax ‐ 10% from the net ‘active interests’ Interests withholding tax – 0% income Cyprus (e.g.: Ukrainian company pays 9% interests to Cyprus that in its turn pays 8% to Panama; the only difference in 1% (9% minus 8%) will form Cyprus’ company taxable income) $ Interests Interests paid are tax deductible (due to the Ukrainian thin capitalization rules the Interests withholding tax – 0% amount of such a deduction may be limited up to 50% of the Ukrainian company’s net profit in the Ukrainian corresponding tax period in case the interests are paid company to a company (or to its related parties) holding 50% and more shares in the company paying interests)

Equity financing Panama Belize BVI $ Capital contribution Capital contributions in the form of money Cyprus are not subject to taxation $ Capital contribution Capital contributions in the form of money Ukrainian are not subject to taxation company

Dividends distribution Panama Belize BVI No taxes! $ Dividends Corporate tax ‐ 0% Dividends withholding tax – 0% (subject to some easily met conditions dividends received Cyprus from Ukrainian subsidiaries are exempted from the scope of corporate income tax) $ Dividends Dividends withholding tax – 0% Corporate tax in Ukraine is Ukrainian 23% of the net income company

Cyprus Shareholder 2 Shareholder 1 Shareholder …Holding (Panama/Belize/BVI) (Panama/Belize/BVI) (Panama/Belize/BVI) Y% shares X% shares Z% shares Shareholders Cyprus Agreement Share (100%) Ukrainian company

Sale of Shareholder 2 Shareholder 1 Shareholder …Business (Panama/Belize/BVI) (Panama/Belize/BVI) (Panama/Belize/BVI) 0% 0% 0% $ Dividends Corporate tax on disposal of share(s) ‐ 0% Cyprus (subject to some easily met conditions income from the disposal of shares are exempted from the scope of the $ corporate income tax in Cyprus) Purchaser Share(s) Withholding tax on sale of share(s) – 0% Ukrainian company

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Ukraine financing and holding schemes

by 1nterlegal on Nov 03, 2011

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