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Tax Code: Permanent Establishment Rules


There have been a number of key developments in the Permanent Establishment (PE) rules introduced by the Tax Code of Ukraine. Taxand Ukraine looks at these changes in a number of areas.

Service Activites
It is important to consider that tax compliance rules do not contain the procedure for service PE registration unless the service provider voluntarily decides to set up a representative office in Ukraine. Services involving provision of personnel are explicitly excluded from the PE definition. Thus, no PE will arise if the scope of service contract is provision of personnel.

Previous legislation did not include a definition of the "building site" PE. Now the PE term encompasses the following: a building site; a construction; assembly or installation project; or supervisory activities in connection with provided duration of works connected with such a site, project or activities lasting more than six months.

Provision of Personnel
The Tax Code explicitly states that the provision of personnel should not raise a PE for a non-resident service provider. Whilst there is a limitation for deductibilility of service fees paid to foreign service providers, such restrictions do cover fees for personnel provision. Specific clauses in the Tax Code bring sufficient clarity as to the tax treatment of secondment arrangements. This represents an improvement in comparison with previous legislation.


Taxand's Take

In anticipation of future tax audits foreign service providers are advised to:

  • Review service arrangements covering Ukraine whether arrangements may qualify as a PE
  • Take timely actions jointly with the Ukrainian customer to implement provisions of the relevant tax treaty.

A potential risk of dispute with the Ukrainian tax authorities should not be ignored. The Tax Code of Ukraine allows the possibility of obtaining a tax ruling from the Ukrainian tax authorities, which may be of help to manage a risk of dispute.

Your Taxand contact for further queries is:
Vladimir Didenko
T. +380 44 492 8282

Download the full commentary to Ukraine's tax code here:

Taxand's Take Author