Before buying an offshore, potential buyers usually compare the conditions of various vendors - so to speak, “ask the price”. At this stage, many people have the same questions: why are the prices for classic offshore companies so different? In fact, the cost of registration of such a company on the sites of competitors may be 5-10 times different. A tempting low price for an offshore company did not forebode good before, and the situation had worsened over the past year and a half to such an extent that at present, such a purchase might result in criminal prosecution. In this blog, we’ll figure out what forms the price of the offshore, how the sellers manage to reduce it and how relevant is the proverb about “cheap fish” and “bad broth”.

What is included in the cost of an offshore company?

The real offshore price consists of three important components, such as:

  • Required minimum (cost price). This includes the registration of the company in the state register, payment of state duty, a basic package of documents, registration of the registration address, opening of an account in a local bank, international sending of documents and other mandatory procedures.
  • Additional conveniences. In addition to the aforementioned minimum, the customer may need other services - for example, site creation, virtual office, nominal service, etc.
  • Work of specialists. Competent individual approach of the company involves the selection of jurisdiction taking into account your needs, preparation of documents, consulting with foreign registrars and banks. All this requires time and material costs, and therefore, appropriate payment. At the same time, the higher the quality of service and the level of security, the more justified is the high cost of the company’s services.

Miser pays twice: why can you overpay with a cheap offshore?

If a small discount (up to 30%) can be explained by special arrangements between agents or the absence of a nominal service, then obvious cheapness should cause fear. As we have explained above, the formation of the price is quite reasonable and obvious. If you neglect any of the components, you will acquire a non-working tool, and serious problems with the law. Let’s take a closer look at how the sellers manage to reduce the price of a real firm. There are several “classic” situations associated with the purchase of a cheap offshore.

  1. One offshore - several owners. The low cost of an offshore company can be explained by its simultaneous sale to several customers. The last ones do not know about each other and use the offshore calmly, until one of them has problems or issues with the tax authorities. Today, such frauds are quickly revealed and therefore they are extremely rare. However, outspoken scammers, who do not care about their reputation, do it nowadays.
  2. Incomplete package of documents or services. As indicated above, the preparation of documentation is included in the cost of the offshore. However, after payment, it often turns out that some important documents are not included in the declared low price. For example, a bank may require a Good Standing certificate, which the offshore seller will notify the customer about post factum, asking for an additional fee for processing the document. The registrar can also neglect the confidentiality of the customer, for the sake of economy, and, instead of registering a company for a nominal shareholder, issue shares directly in the name of the owner.
  3. Unprofessionalism of agents. The registrar can significantly reduce the costs by recruiting a novice or an inexperienced specialist working according to a “template”. At the same time, neither your wishes nor changes in the legislation, nor the new requirements of the selected jurisdiction and bank will be taken into account. For example, you can buy an offshore company in Panama without being informed that a reporting requirement has been introduced in the country recently. In the absence of an individual approach, the tasks arising in the process, namely, the appearance of a request for additional documents, interaction with government agencies, changes in life circumstances, etc., are not solved or are ineffective.
  4. Poor nominal service. In order to make an impression of offshore as a real company, the nominal employees should be in touch, respond promptly and efficiently to requests, sign documents, etc. If this is not the case, the enterprise causes suspicion. Today, the widespread use of the same nominal employees in many companies is quite common. If desired, it is easy to verify, especially if there is an online service that allows you to find all the companies in which he holds the position of director (as in the United Kingdom). In order to maximize the price of a service, the fraudulent companies may resort to using the following instead of a professional value:
    • documents of dead or non-existent persons;
    • persons without a fixed place of residence;
    • unauthorized persons without their knowledge.

    It goes without saying that in such cases the documents are falsified. The first official request to the company will entail problems with law enforcement agencies.

  5. Fraud on reporting. This turn of events is the most dangerous for the client. Most jurisdictions have certain reporting requirements now. Most often, the machinations are carried out in the states where there is a complete (active) and so-called “simplified” (passive) reporting system. The latest option is much cheaper, but it is suitable for a certain list of companies. What pitfalls can a buyer expect? First, the client may simply not be notified of the need to report or even assure in the absence of such a requirement. The consultant can also include full reporting in the cost, and, in fact, submit passive one, although the company is quite active. Such “skeletons in the closet” are discovered sooner or later, and on one “fine” day, the owner of the offshore will receive a notification from the tax service or other inspection service.

How to protect yourself and your business when buying offshore?

Even if you do not take into account scammers, too cheap jurisdictions are dangerous because of their bad reputation. One of the first problems that you will face is the inability to open a bank account. In addition, underdeveloped countries do not provide proper IT protection, so hacking their vulnerable systems and sites for experienced fraudsters is a simple matter. If you care about your reputation, do not neglect the authority of the jurisdiction when buying offshore. Over the past few years, the trends in the offshore market have changed: legislation has become tightened, many countries have begun the automatic exchange of financial and tax information and have introduced open registers of beneficial owners. Compliance with the new standards has allowed the states to maintain an international reputation, but they are forced to raise the requirements for the registration of companies, conduct due diligence, request additional documents, introduce new registers and so on. All this is associated with higher costs, and, ultimately, with an increase of the cost of opening a company. In view of the above, the client must soberly assess the situation on the market and do not expect that he will receive “all inclusive” for $ 500 without a bunch of problems with the law in addition.

Following the introduction of a public register of persons with significant control for the British companies and LLP (from April 2016), as well as for the Scottish partnerships (since June 2017), some British dependent territories, under pressure from the UK itself, have created similar registers / databases. However, these centralized registers will be closed, and the access to data from them will be available only to the British competent authorities and only upon request. This decision has become a compromise after many years of negotiations and frictions, since the overseas territories, although partially subject to the law of Great Britain, are still self-regulatory. On the one hand, access to these closed registers / databases will enable the UK law enforcement agencies to monitor tax evasion, as well as terrorists and criminals hiding behind the anonymous companies. On the other hand, this will put an end to the requirements for the introduction of open registers of beneficiaries in the countries partially controlled by Great Britain. Among such states are the Cayman Islands, the British Virgin Islands, the Isle of Man, Bermuda, Guernsey, Jersey, and others. As the British Virgin Islands (hereinafter - the BVI) are the most popular with our clients among offshore jurisdictions, we will consider legislative changes in connection with the agreements reached with the UK.

So, after the exchange of official communications between the governments of the BVI and the UK on June 12, 2017 the Law on Beneficial Ownership Secure Search System (hereinafter - BOSS) was adopted, and from June 30, 2017, it came into force. In accordance with this law, at the moment, the work is in progress on creating a central database (server) on the BVI, which will contain all the information and supporting documents about the beneficial owners of all corporate entities and legal entities registered in this jurisdiction. This database will be used to facilitate the effective transmission of information on the ultimate beneficial owners by the competent BVI authorities at the request of an authorized law enforcement agency of the United Kingdom.

The beneficial owner in the BOSS Act is defined as a natural person who ultimately owns or controls directly or indirectly 25% or more shares or voting rights of a legal entity. It should be noted, that, however, there is a threshold of 25% or more for the purposes of the BOSS legislation for claiming a report on a beneficial owner, in other BVI legislation, on combating terrorism and money laundering, it is set of more than 10%. This means that the registration agent can request information about all persons who control more than 10% of the company’s shares. The information about the trustee or other person who controls these legal relationships is subject to disclosure, as well as information about the founder or another person with whom a nominal agreement is concluded.

The BOSS Act allows each Registered Agent to create its own databases for storing information about the ultimate beneficial owners of legal entities, which, in turn, will be available to officials of one of the following authorized competent authorities:

  • Financial Investigation Agency;
  • Financial Services Commission;
  • International Tax Office;
  • Chamber of Attorney General.

The BOSS Act requires to provide the following information for each beneficial owner:

  • name;
  • address of residence,
  • date of Birth,
  • citizenship.

The requirements for storing information in BOSS are also listed in the Law. The requirements for the relevance of data in BOSS are also established. The companies are required to notify the registered agent of any changes in the beneficial ownership or the information about the beneficial owners provided by law for filing, within 15 days from the receipt of information about such changes, indicating the date of these changes. After this, the registered agent must take all necessary steps to update the BOSS system within 15 days after receiving the notice of the changes.

Strict penalties are imposed on both companies and registered agents for non-compliance with these requirements. Strict punishment for registration agents (fine or imprisonment) is also provided for provision of knowingly false information concerning a corporate legal entity, since this is considered a crime. In conclusion, we note that the BVI has concluded a number of agreements on the exchange of tax information with other countries. In addition, information on beneficial owners has always been available to competent authorities that have submitted a proper request to the relevant BVI body. And this means that BVI, like other offshore jurisdictions, are moving towards transparency with long strides, and the offshore companies are gradually losing their anonymity.

The partner of Finance Business Service Yuri Krasilnikov and tax disputes specialist Rolan Bondarets attended the V International Tax Forum, which took place on April 13, 2018. In this blog, we will tell how the event was held, what issues were most actively discussed by the participants, what points were voiced by the speakers, as well as share our own thoughts. The speakers were the representatives of business, representatives of the legislative, executive and judicial branches, as well as the specialists in the field of taxation. Many interesting and topical issues for Ukraine were discussed within the Forum.

At the beginning of the event, Algirdas Shemeta - the business ombudsman in Ukraine - recalled the reasons that led to the appearance of the BEPS (Base Erosion and Profit Shifting) plan and its essence. “Overoffshorization” of the world business became the catalyst of the world economic crisis of 2008-2009. This prompted the OECD to identify the main causes of the crisis, as well as to discover and develop the methods for its prevention in the future. In fact, BEPS has emerged as a protective mechanism to prevent tax evasion, which essence is that companies must be taxed where they actually operate, rather than transferring taxable objects to those states and territories that allow to avoid or minimize it. That is, the construction of holdings and business models should not have a single goal to receive tax benefits.

It’s no secret that it is very difficult for business in Ukraine to gain access to money for development. That is why the issues of appearance of “tax on the withdrawn capital” in Ukraine turned into a rather lively discussion which should replace the “profit tax”. The essence of the “tax on the withdrawn capital” is that until the profit received by the enterprise is not withdrawn from business, it is not taxed. Therefore, the enterprise is able to invest these funds in its own development. And, as one participant of the Forum rightly pointed out, this law concerns not so much taxes as business opportunities. Yes, indeed, the introduction of this tax instead of the profit tax contains certain risks and a burden on the country’s budget. But it should be born in mind that such a significant change in the taxation system is not designed for immediate benefits, but for long-term and targeted development of the business and economy of the state as a whole. At the same time, Ukraine is not an innovator of the introduction of such a tax, because it is already applied in Estonia, Latvia and Georgia.

State bodies refer to the fact that the introduction of the “tax on the withdrawn capital” will entail non-payment of about 30-50 billion UAH to the budget, that is, it will be necessary to seek compensators for additional revenues to the budget, thus hinting at the introduction of additional taxes or an increase in the base rates of already existing. In this regard, you can see that compensators can act not only as additional sources of revenue to the budget, but also reduce costs from it. In particular, it is known that the staff of the officials at all levels has been unjustifiably expanded and the budget expenditures for its maintenance are unreasonably high. Why not reduce the expenses in this part and not allow the business to develop and strengthen the economy of the country!? By the way, many countries have chosen this way.

During the speech, much attention was paid to the fact that it was proposed to introduce such a concept in the bills that were currently available as “transactions equated to transactions with the withdrawal of capital”. In particular, they want to include such operations:

  • payment of interest to a non-resident-related person or registered on a low-tax territory;
  • transfer of goods without payment to a non-payer of the tax on the withdrawn capital;
  • financial assistance to a non-payer of the tax on the withdrawn capital which does not return within 12 months;
  • transfer of funds from a Ukrainian account to a foreign account to a non-payer of the tax on the withdrawn capital for the acquisition of property from a non-resident;
  • repayment of a debt obligation under a contract with a non-resident, the performance of which results in receiving funds in the accounts of Ukrainian banks or obtaining property;
  • investment abroad;
  • purchase of works (services) from a non-resident with payment, but without obtaining work (services) in a period of 360 days;
  • payment to a non-profit organization for other purposes than those provided for by the Ukrainian tax code, or at a rate of more than 0.5% of net income.

Despite the fact that the introduction of the “tax on the withdrawn capital” should become a very strong push for business development, the talks about it remain only talks in Ukraine for several years. However, optimistic participants of the Forum believe that this law will be adopted in the near future and it will start working in 2019. Hrihol Katamadze - the President of the Association of Taxpayers of Ukraine - noted that there have been almost no radical changes in recent years in Ukraine to simplify business. He rightly noted that such a number of changes in tax legislation, as in Ukraine, does not take place in other countries. And this does not benefit either Ukraine or the taxpayers. As practice shows, in the countries where the tax legislation is unstable and unpredictable, attracting investment almost does not happen. After all, investors can not afford to bear unjustified risks associated with such sharp and chaotic changes in the laws.

In order to correct the situation, according to the conviction of Forum participants, the law “on the withdrawn capital” should be adopted. In addition, it will not be superfluous to join the global trends in taxation. So, the unification of the tax rules is an urgent need, as well as introduction of moratorium on amending the tax legislation for at least three years. “Zero declaration” and “tax amnesty” were separate issues of the Forum. The opinions of the participants of the event were divided on this occasion. Some argued that a complete “tax amnesty” should occur by declaring all the property (including money) and guaranteeing the state not to use administrative and criminal responsibility. Others stated fairly and reasonably that “zero declaration” and “tax amnesty” can not be applied to the deputies and state officials.

There was also an issue whether this should be a “zero declaration”, or some minimum fixed tax rate should be applied. In this regard, examples of the states were given that had already passed through this. It will be fair to note that in each country that have passed through the “zero declaration”, the results have not been the same, as well as the expected economic effect. Therefore, it is necessary to approach the issue of “zero declaration” and “tax amnesty” very carefully, in order, on the one hand, not to legalize property and funds that have been acquired knowingly by criminal means, and on the other hand, to restore people’s trust in the state taxation institution by turning attention to its importance and necessity.

Another issue that was discussed rather lively was the creation of a “national financial security bureau”, that is, an agency that would deal specifically with the investigation of economic and financial crimes. The points voiced by the representative of the legislature regarding the creation of a “national financial security bureau” were:

  • one hundred percent ban on attracting “old” law enforcement officers to work in the new body;
  • lack of physical protection service;
  • it should be a single body that investigates economic crimes.

The bills on the establishment of this body have been seriously criticized. Indeed, it is surprising to grant such authority the right to send any requests regarding the natural persons and legal entities without opening criminal procedures, the right to collect biometric data, access to voters’ lists. Therefore, it seems that the authors of the draft laws do not fully understand what is the analytical work of the body which carries out investigations of economic crimes. The participants of the event expressed their fears that the newly created body would be the same tax police, but with greater powers, which in turn could lead to abuse of the workers’ rights and violations of taxpayers’ rights.

A certain part of the Forum was devoted to the issue of tax consulting. On this issue, a parallel was drawn between the countries in which the established practice of tax legislation operates and Ukraine. Unfortunately, at this stage of development, our country loses significantly in the matters of both tax consulting and tax planning. Attention was paid to the fact that when planning business, tax advisors of the countries with well-established practice of tax legislation can develop business plans for up to 6 months, but this scheme will operate without changes for many years. It is still impossible in Ukraine unfortunately, because annual (and sometimes more often) changes in tax legislation do not allow such plans to be implemented. Such sort of simple and settled issue of obtaining individual tax advice was being discussed at the same session of the Forum. But as practice shows, tax authorities treat such requests of taxpayers quite formally. And in the event when certain formal deficiencies are found in the request for an individual tax consultation, the supervisory authorities consider them within the framework of citizens’ appeal and provide a response that is not an individual tax advice. The consequence of this is the deprivation of the ability to refer to such a response as to the official position of the supervisory authority regarding a particular situation in the event of a possible tax dispute. We would like to note that individual tax advice must be registered in the relevant register, which is placed on the official site of the SFS.

Taking into account such a rapid and unpredictable change in tax legislation, it is logical that litigation between business and the supervisory authority not only decrease, but gain more and more momentum. According to statistics, at the end of March 2018, 42% of all cases are tax disputes in the Supreme Court, and according to some reports, the supervisory authority lose more than 70% of all litigation. In this regard, business still has hope that the Supreme Court will unify the judicial practice on tax disputes, will depart from those shameful and unreasonable positions of the Supreme Court of Ukraine, which put taxpayers in dependence on the lawful / unlawful behavior of their counterparts, and, finally, will take measures to restore trust in justice.

What is important to know when choosing a foreign bank in 2018

Recently, an increasing number of citizens, concerned about their future, the future of their family or business, face the issue whether it is possible to open an account in a foreign bank and what is required for this? Which bank to choose for this: European, offshore bank, etc.? Historically, (and sometimes it is quite justified) the trust to a foreign bank is higher than to local institutions, and obtaining, for example, a loan is possible on more favorable terms than in Ukrainian banks, moreover, many people wish to keep the confidentiality of their actual income.

Regardless of whether you want to open a foreign bank account online in offshore or onshore jurisdictions, a number of aspects need to be considered and analyzed when choosing a bank. That is why the company Finance Business Service works with more than 100 banks around the world. We ask only really necessary questions in the process of selecting banks for our clients.

The current situation in the banking shows that financial institutions are increasingly facing problems of unexpected loss of correspondent accounts in US dollars. In general, the US is only a part of the global pressure on the international banking sector, we should not forget about the OECD program on automatic information exchange, and about the guidance of the BEPS. The complexity of automatic exchange for international banks is not only in the risk of losing a significant number of customers, but also in understanding what and whom to provide as part of the exchange. Tension in the banking sector is clearly traced through the complication of the procedure of opening accounts and building of long-term cooperation, directly influenced by the financial regulators of international banks.

In such a situation, real risk diversification is possible only if you have a spare foreign bank account. It is worth mentioning the risks of owning a bank account in only one country. The vivid examples are the hacker attacks on financial institutions of different countries, the volatile policy of central banks, often aimed at reducing the number of financial institutions in the country, etc. The main criteria for choosing a bank

  1. Before choosing the most suitable bank for opening an account, first of all, you should determine the goals that you need to achieve using this account. They can be very diverse:
    • Saving of personal funds;
    • Private investment of private funds;
    • Earnings on the Internet or online commerce;
    • Sale of goods and services to foreign partners, etc.

    If the purpose of opening an account is a standard commercial activity with a large number of incoming and outgoing payments, then the most important criteria for choosing a bank will be the speed of the transfers carried out by the bank and the convenience of managing the account; in particular - the availability of a remote account management system (Internet bank), as well as the average cost of one transaction. It is also important to clarify whether the bank is working with the list of currencies you need. In the case when the main task of opening an account is to keep the financial resources already earned by the entrepreneur, usually attention is given to the bank’s reliability rating. The interest on the deposit will be relatively low in the banks of high reliability category (“AA” and higher), which is due to the conservative investment policy of the banks of this group. If an entrepreneur raises the issue to make his free funds, untapped in the main business, continue to “work”, creating additional income, then one should consider the option of opening an account in one of the investment banks that place client’s funds professionally in international stock markets, getting relatively high interest income.

  2. Is it necessary to visit a bank to open an account? Many customers prefer to open an account without going to the bank. Opening of accounts is possible remotely, subject to certain requirements of the bank. In addition, in some cases, you should be prepared for the possible need to meet with a representative of the bank in Kyiv or in one of the regional offices of the bank, for example, in Europe (depending on the bank).
  3. Tariffs, cost of service, availability of necessary bank products When analyzing tariff rates, it is necessary to pay attention to the availability of additional bank commissions, for example, for considering a package of documents for opening an account, etc. At the same time, it is important to clarify the fate of these resources, if the bank refuses to open an account - as the tariffs of banks may specify that these commissions are not returned. The banks of Europe (Liechtenstein, Switzerland, Austria, etc.), being respectable and reliable - mainly refer to savings banks. Tariffs for their services are much more expensive than in commercial banks with a priority rate for conducting banking operations. The availability of certain bank products may sometimes become a key factor when choosing a bank. Some banks offer cards that do not contain the owner's name, some cards require special transfer from the account, others are attached directly to the account, etc. Brokerage accounts will be necessary for transactions with securities, FOREX-accounts - for the operations in foreign currency markets.
  4. Do you want to give minimum information about yourself and your business to the bank? The general trends in the world financial system are such that now almost all banks request a lot of detailed information about the business and its ultimate beneficiaries. Banks are forced to comply with the requirements imposed on them by law, otherwise they can incur catastrophic amounts of fines, remain without a license ... The list goes on. Be very careful if your counselor / lawyer recommends working with the bank, arguing that “this bank does not ask anything”. There is a big risk that then you will look for the specialists to return your money earned for years of hard work.
  5. Bank secrecy. If this is one of the main criteria for you and your business, then, on choosing a bank:
    • pay attention to the international agreements of the jurisdiction in which the bank you are interested in is registered, about mutual assistance and the provision of information to other countries;
    • choose a country with high standards of bank secrecy and strict laws regarding the disclosure of bank secrecy (Switzerland, the Cayman Islands, Hong Kong, Singapore, etc.)
  6. The availability of personnel with the knowledge of the Russian language, Russian-speaking Internet banking, technical support in Russian. This is an important point for many customers.


We wish to think, when preparing to become a client of a foreign bank, a potential client chooses his own bank himself. But the reality is that everything is exactly the opposite in banking for non-residents. The bank always makes a decision to open or not to open a bank account for you as non-resident. And it will not risk the existing customer base, the license, the freedom of the bank’s executives and the Compliance officers, because they are responsible (up to their freedom) to ensure that risky and problematic clients not to be included in the number of bank’s customers. Banks have their own and often quite vague list of characteristics that should be initially inherent to a potential non-resident client.

The company Finance Business Service is ready to help you and take painstaking and extensive work on itself. We suggest answering the questions of a specially designed brief for the professional choice of a foreign bank to open an account. It includes a number of issues, best adapted to the general banking standards and requirements. Based on the answers provided, we analyze and select the most suitable financial institution in accordance with your goals and plans.


By registering a company abroad with the help of Finance Business Service, you receive special tariffs for the package of services, while the standards of the constituent instruments of the companies registered by us meet the strictest requirements of international banks. Thus, the documents will be ready for immediate submission to the bank you need.

The Cyprus holding companies are widely used in the context of international business structuring for the optimization of the channels of incoming and outgoing investment in/from the countries that have signed an agreement with Cyprus on avoidance of double taxation. Recently, the Tax Department has published a guide to VAT accounting for holding companies, which is designed to provide clarity with respect to the circumstances under which the Cyprus holding companies can receive taxable income.

Definition of taxable activities

The common position and practice regarding the regime for levying VAT on dividends remain unchanged. The simple acquisition and ownership of shares in other companies by a Cypriot company does not constitute a taxable business activity in the sense of exploiting assets for income generation. The reason for this approach is that the dividends received from such ownership of shares are considered to arise solely at the expense of ownership of shares, rather than from the form of business activity carried out for the purpose of income generation. Consequently, an enterprise that simply owns shares or a similar form of a stake in another organization is not considered to be taxable. However, if a holding company goes beyond the simple exercise of its rights as a shareholder and takes an active part in the management of its subsidiaries, directly or indirectly, this may constitute a taxable activity.

The test for determining whether such participation in management exists is objective. There are no decisions in the European Court that set out specific rules or precedents on this issue. Each case must be considered individually on specific facts and circumstances. The instruction states that the term “management” can cover a wide range of activities, from organization and administration to the adoption of strategic decisions. These actions can be taken directly, that is, by a legal entity owning shares or indirectly - by a person hired or connected with a legal entity that owns the shares.

Any evaluation should be based on the essence, not on the form. For example, do the directors of affiliated companies exercise autonomous powers to manage their business, or do they simply mechanically approve decisions made at the level of the holding company? These issues should be resolved on the basis of specific facts, such as the degree of duplication or general powers of the director and decisions of the board of directors.

A holding company that has a controlling interest in a subsidiary company clearly has the right to influence the decision-making process in the subsidiary. If the facts show that the holding company exercises this right, any dividends received can be considered a reward for the provided management services and, therefore, income from business activities.
An additional important factor is that the holding company has the necessary human and other resources to provide such services. The instruction states that in some cases the holding company can not use its authority to influence its subsidiary, therefore it is a passive investor with the sole purpose of obtaining dividends without participation in management.

The current jurisprudence is that the company’s participation in the management of the invested company is recognized as economic activity in accordance with Article 3 of the VAT Law and Article 9 (1) of the EU VAT Directive (2006/112 / EU) and therefore it is subject to VAT in accordance with Article 5 of Cyprus Law and Article 2 of the EU Directive.
A holding company, like other companies, must be registered by a VAT payer if its taxable supplies exceed the registration threshold or it receives services from foreign suppliers that must be taken into account within the framework of the reverse charge mechanism.

Otherwise, the holding company can be registered voluntarily. The amount of input VAT that the holding company can reimburse will be based on the distribution between its taxable and non-taxable activities.

What is bank secrecy

The relevance and importance of the topic of bank secrecy is hard to overestimate. The correct application of the legal rules regulating the procedure for its disclosure is necessary both for bank employees and all other persons who are aimed at gaining access to this information. At the same time, it is necessary for natural persons and legal entities to obtain information “protected” by law in order to protect their violated rights. Article 60 of the Law of Ukraine No. 2121-III of 07.12.2000 “On Banks and Banking” (as amended, hereinafter - the Law of Ukraine “On Banks and Banking”) defines bank secrecy as information on the activities and financial status of the client that has become known to the bank in the process of servicing the client and relations with him or third parties when providing services of the bank.

Bank secrecy, with respect to the bank’s clients, in particular, are:

  1. information about clients’ bank accounts;
  2. transactions that were carried out in favor of or on behalf of the client, transactions carried out by him;
  3. financial and economic status of clients;
  4. client protection systems;
  5. information on the organizational and legal structure of the legal person-client, its managers, directions of activity;
  6. information on the commercial activities of clients or commercial secret, any project, inventions, samples of products, as well as other commercial information;
  7. information about a natural person who intends to make an agreement for consumer credit obtained in assessing his creditworthiness.

Who can obtain data that contains bank secrecy, and in which cases

According to Art. 1076 of the Civil Code of Ukraine, the bank guarantees the secrecy of the bank account, transactions on the account and information about the client. Other persons (state structures, SSU, etc.), except the clients of the banks and their representatives, such information can be provided only in cases and in the order established by the Law of Ukraine “On Banks and Banking”. There is a special procedure for the banks for the storage and disclosure of bank secrecy. At the moment, the information about legal entities and natural persons, containing bank secrecy, is disclosed about the clients by the banks:

  1. upon written request or with the written permission of the relevant legal or natural person. Information on escrow accounts and transactions in respect thereof is also disclosed on the written request of the beneficiary. Information on the fund balance in the bank account, property rights to the funds on which are encumbered, transactions on them, encumbrances in respect of which the bank received messages, including those taken by the bank, other restrictions on the right to manage the account are also disclosed on the written request of the encumbrancer, if the right of the encumbrancer to receive relevant information is provided for by the transaction on the basis of which such an encumbrance arises;
  2. by a court decision;
  3. by the bodies of the Procurator's Office of Ukraine, the Security Service of Ukraine, the State Bureau of Investigation, the National Police, the National Anti-Corruption Bureau of Ukraine, the Antimonopoly Committee of Ukraine - upon their written request regarding the transactions on accounts of a particular legal entity or natural person - business entity for a specific period of time;
  4. to the central executive authority implementing the state tax policy, at its written request for the existence of bank accounts;
  5. to the central executive body implementing state policy in the field of preventing and combating the legalization (laundering) of proceeds from crime or financing of terrorism, to its request regarding the financial transactions related to financial transactions that have become the subject of financial monitoring (analysis) according to the legislation on prevention and counteraction to legalization (laundering) of proceeds obtained from crime or financing of terrorism, as well as the members of the specified operations;
  6. to the bodies of the state executive service, private executors on their written request for the execution of judgements and decisions subject to compulsory enforcement in accordance with the Law of Ukraine “On Enforcement Proceedings”, on the availability and / or status of the debtor’s accounts, cash flows and transactions on accounts of the debtor for a specific period of time, as well as information on the debtor’s contracts for the storage of valuables or the provision of the safety deposit box to the debtor on the property lease, protected by the bank;
  7. by a court decision, to the National Agency for the Prevention of Corruption in relation to the availability and status of accounts, transactions on the accounts of a particular legal entity or natural person, a natural person who is a business entity in accordance with the Law of Ukraine “On the Prevention of Corruption”;
  8. to other banks in cases stipulated by the Law of Ukraine “Οn Banks and Banking” and the Law of Ukraine “Οn the Prevention and Counteraction to legalization (laundering) of proceeds from crime, financing of terrorism and financing the proliferation of weapons of mass destruction;
  9. to the central executive authority providing for the formation of the state financial policy, upon its written request during the budgetary process for the purpose of verification and validation of the accuracy of information provided by the natural persons for the purpose of calculating and receiving social benefits, benefits, subsidies, pensions, wages, other payments made at the expense of state and local budgets, the funds of the Pension Fund of Ukraine and other funds of the compulsory State insurance and in timely and in full implementation, the information is provided on the accounts (current, credit, deposit, etc.) opened in their name, transactions and balances on them. In the case of accrual and receipt of social benefits, benefits, subsidies intended for a family or household, information is provided on each member of the family or household;
  10. to the National Agency of Ukraine on the identification, search and management of assets obtained from corruption and other crimes, at its written request in connection with the implementation of identification and search for assets that may be seized in criminal proceedings - on the availability and status of the accounts, transactions on accounts of a particular legal or natural person, natural person - business entity.

The order and the amount of disclosure of information by banks containing bank secrecy are determined by the Civil Code of Ukraine, the Law of Ukraine “On Banks and Banking” and the Rules for the storage, protection, use and disclosure of bank secrecy (approved by the NBU Board Resolution No. 267 of 14.07.2006, with changes).

Joining the International Financial Information Exchange System CRS: Implications for Ukraine

Bank secrecy may be abolished in Ukraine in two years. Automatic exchange of tax information occurs between the countries that have signed the Organization for Economic Cooperation and Development (OECD) convention on countering Base erosion and Profit Shifting (BEPS). According to the head of the Ministry of Finance of Ukraine Oleksandr Danylyuk, in 2020, our country will be ready to join the international Common Reporting Standard CRS, which was introduced to the EU in March this year, and it provides for the abolition of bank secrecy.
The US was the first to start fighting against tax arrears by registering firms in offshore jurisdictions. In 2010, the law was passed permitting US fiscal officials to obtain information abroad about the incomes received in this or that country by American citizens. The law proved to be effective, and now more than 100 countries of the world, first of all economically developed, have joined the exchange of financial information. The exchange between fiscal services is carried out automatically on the basis of reciprocity.
“The increase of the profitability of business using offshore has become so popular in the world, there was a sharp drop in tax revenues and an increase in the deficit of the state budget in the countries with high taxes”. Today, offshore companies hide about $ 10 trillion. So CRS was created in order to return at least part of them - the president of the Ukrainian Analytical Center Olexander Okhrymenko explained.

After joining the CRS, Ukrainian banks will collect and transfer data about their clients to the fiscal bodies, which, in turn, will automatically exchange the information with the colleagues from other countries and receive information about them from our fellow citizens. First of all, those Ukrainians who have accounts abroad will be under intense scrutiny. According to Danylyuk, now there is no way for the Ukrainian fiscal bodies to get full information on the actual Ukrainian owners of the companies operating in our market, about their financial transactions abroad, including the existence of accounts, property, securities outside Ukraine. Financial analysts approve our authorities’ intentions to join the CRS, but they say that this will not happen soon.
Andriy Shevchyshyn, an analyst in the GC “Forex club”, has stressed in an interview with the media that CRS is a global trend aimed at clearing the world banking system of offshore companies and minimizing taxation through them, so we will have to support it eventually.“It is profitable for the states, but not beneficial for the clients. But not all offshore countries support CRS, so businessmen who have enough funds to open offshore companies, for example in Belize or in the Virgin Islands can be quiet for their income”.

It is still not clear if the bank secrecy will be completely abolished also in Ukraine in connection with the accession to the standard - it is necessary to make changes to the Law of Ukraine “On Banks and Banking” for the abolition. The initiative of the Ministry of Finance is not commented in the NBU. The data on bank accounts of the Ukrainian citizens is not disclosed yet.
They say, he who owns the information, owns the world. You should be ready for these changes.

In 2018, Ukrainian tax legislation was subject to a number of changes. Having analyzed the Law of Ukraine No. 2245-VIII “On Amendments to the Tax Code of Ukraine and certain legislative Acts of Ukraine to ensure the balance of budget revenues in 2018”, which came into force on January 1, we decided to consolidate the most significant reforms and summarize. The issue of this blog will be dedicated to it.

Overall changes

Key changes in the general rules of tax law include:

  • exclusion from the definition of “bad debt” of indebtedness of natural persons, forgiven by the creditor;
  • introduction of a new concept of a “syndicated financial loan”;
  • clarification of the definition of “related persons” for TP purposes;
  • introduction of the term “new well” in order to regulate the use of preferential rent rates for the extraction of natural gas;
  • expansion of the list of payments not considered as royalties for the transfer of the right to distribute IPI without the right for their reproduction;
  • clarification of the definition of the weighted average retail price;
  • introduction of the obligation for the taxpayers to ensure the storage of the documents for not less than 1,095 days (for documents and information regarding TP - at least 2,555 days) from the date of submission of the relevant tax reporting;
  • establishment of responsibility for the officials of the supervisory bodies to the state for causing harm to tax payers (in recourse order).

What has been changed in the taxation system of value added tax?

One of the significant changes concerns the definition of the term “cash method”. If earlier the concept assumed the application of the date of the emergence of the right to a tax credit, but from this year, the date of referring the amount to a tax credit is applied.

The second innovation is the expansion of the scope of application of the 7 % VAT rate on imports to Ukraine and sale of medical products. We remind that before this year, this benefit was applied only to the products from the list approved by the Cabinet. Now the 7% rate applies to all products entered in the State Register of Medical Devices and Medical Products or corresponding to the requirements of the relevant technical regulations, and allowed for sale and use in Ukraine.
Among other things, the Law under consideration clarifies the benefits on the value-added tax for book products. Namely, the sale of Ukrainian children’s book editions of up to 48 pages is completely exempt from tax.

At present, exemption from VAT extends to the supply of software in all forms, including electronic and through download links or activation codes. The exception is when royalty is the fee for software products. At the same time, the concepts of “royalties” and “software products” were corrected.

Another important innovation is provision of the taxpayer with an opportunity to take the payment of VAT in installments for a period not exceeding 24 calendar months, without calculation of interest, penalties and fines, when importing the equipment to Ukraine from the list established by law in the order established by the CMU. The supervisory body will provide installments by January 1, 2020 according to the declarations of the payers. It should be noted that in case of alienation, transfer to lease, sublease or transfer of ownership, use of such equipment, the taxpayer is obliged to pay tax liabilities and penalty.

Corporate tax in 2018

The main reforms in respect of income tax in 2018 were:

  • establishment of a 60-day reporting period for filing an annual declaration;
  • clarification of the criteria for categorization of an enterprise as a large payer of taxes;
  • expansion of the list of non-resident individuals subject to a restriction on the inclusion in the amount of expenditure of an amount not exceeding 30% of the payment;
  • provision of the possibility of attributing the amounts paid to non-profitable sports organizations to the expenses, however not more than 8% of taxable profit for the previous reporting year;
  • substantial reforming of TP rules (cardinal change in control and reporting procedures, as well as criteria and subjects of control).

New exemption for single tax

Payers of a single profit tax in 2018 are exempt from payment of an advance payment when dividends are paid, while the sum of the dividends received from the payer of single tax is included in the income of the tax payer.

The list of business entities that can not be payers of a single tax of the IV group is also expanded: now they include the producers of chicken meat, as well as edible co-products of domestic chickens and their eggs.
A tax is imposed on the repatriation of the payments of the payers of a single tax in favour of non-residents.

What has been changed in terms of requirements for non-profit organizations?

Since 2018, religious organizations can be excluded from the Register of non-profit organizations in case of violation of:

  • requirements for establishment and registration;
  • requirements for the use of profit.

In order to enter the Register of non-profit organizations, a religious organization, it is sufficient to fulfill only the requirements for the creation and registration in a manner determined by law.

Local taxes on a new way

Now summary information on the amounts and dates of setting local tax rates, as well as fees and NGOs in the relevant territories can be seen on the official website of the State Fiscal Service.
One of the key changes in the relations of local taxes is the abolition of the responsibility of local tax payers in case they do not receive a notification-decision. In addition, the restriction on the application of the benefit for land tax payment for one type of plot was canceled.

Updated system of taxation of representative offices

The main provisions of the taxation system of representative offices in 2018 can be summarized as follows:

  • Economic transactions between a non-resident and his permanent establishment in the territory of Ukraine are recognized as controlled if their volume exceeds 10,000,000 UAH for the corresponding tax (reporting) year (excluding indirect taxes).
  • Revenues of non-resident companies operating in the territory of Ukraine through a permanent establishment are taxed on general grounds, while the last ones are equal to the taxpayers operating independently from such non-residents.
  • In the event that a non-resident conducts business in Ukraine and abroad and does not determine the profit from his activities through the permanent establishment in Ukraine, the amount of profits subject to taxation in Ukraine is determined on the basis of the drawing up of a separate balance sheet of the financial and economic activities by the non-resident coordinated with the supervisory authority according to the location of the permanent establishment.
  • If the profit received by non-residents with a source of origin in the territory of Ukraine can not be determined by direct calculation, taxable profit is defined as the difference between income and expenses by applying a coefficient of 0.7 to the amount of the received income.

The newspaper “Journal du Dimanche” previously published information about the intentions of the French President Francois Hollande to hold a meeting with the leaders of Germany, Spain and Italy on March 6 in Versailles, dedicated to the future of the European Union. This mini-summit, among other things, should have to demonstrate the unity of the leaders of the four major European powers of the euro zone in the face of the many threats and crises that the EU is currently facing. The agenda also included the study of the issues “related to ensuring the strengthening of the development of the European Union”.
On March 6, the government supported the changes to the Law on the Financial Instruments Market, the Law on Alternative Investment Funds and their Managers, as well as the Audit Services Act. What is the ultimate goal of these changes? They should make the EU financial market more transparent and stable, reduce systematic risks, protect depositors, and ensure the effectiveness of financial markets and reduce the costs of their participants. The changes in the laws have been designed to adopt the Directive of the European Parliament and the Council on the markets of financial instruments.
In the process of painstaking work over the directives on the part of institutions and EU Member States, the assessment of the existing supervisory practice of the financial market was made, insufficient transparency in the general financial markets was recognized, actually taking place and partially unregulated trade actions by the regulations were analyzed.
The outcome of the integrated assessment was the conclusion that the existing regulation is not sufficient to ensure the full stability of the financial markets and transparency of their activities. Thus, in order to solve and eliminate the identified shortcomings, the draft directives have been developed.
By adopting the Directive, the financial institutions of the Member States have provided the comprehensive regulation to ensure the protection of depositors. An important part of this regime is the protection of customers’ funds and financial instruments. The duties of the investment brokerage companies is the implementation of appropriate measures to protect the rights in respect of securities and cash assets entrusted to the investment brokerage company, as well as the property rights of the depositor.
Investment brokerage companies will have to implement the appropriate specific order to ensure the protection of financial instruments and customer funds. The main goal of all legislative changes under consideration remains clarification of the legal regulation of investor protection and increase of the transparency of related procedures.
We will hope that, in accordance with the overall strategy, a single integrated legal and economic approach to the legislative reform of the EU countries will effectively ensure fair treatment for all participants in the financial market. And, in order to find always the necessary benchmarks in constantly changing trends and organize effectively your business in the EU and not only - contact the specialists of the company Finance Business Service!

As we noted earlier, pursuant to the Law of Ukraine No. 2245-VII of 07.12.2017 “On Amendments to the Tax Code of Ukraine and certain legislative acts of Ukraine to ensure the balance of budget revenues in 2018”, the Cabinet of Ministers of Ukraine adopted Resolution No. 117 of 21.02.2018, which approved: “The procedure for suspension of registration of the tax invoice/calculation adjustment in the Unified Register of Tax Invoices”, “The organization of work of the commissions that decide to register a tax invoice/calculation adjustment in the Unified Register of Tax Invoices or refusal in such registration”, “Procedure for considering complaints against the decisions of the commissions that decide to register a tax invoice/calculation adjustment in the Unified Register of Tax Invoices or refuse to register them”.
If the basic algorithm for suspending the registration of tax invoices and calculation adjustments (TI/CA) has remained almost unchanged, then the order of their “unlocking” has undergone significant changes. We will figure out what exactly has been changed, and whether this will simplify the life of the taxpayers.
As before, the taxpayer will be informed of the fact of suspension of the registration of the TI/CA by a receipt that must be sent by the supervisory authority automatically during the operational day.
In order to “unlock” the TI/CA, the taxpayer provides electronically the supervisory authority (SFS) with the explanations and copies of the documents. The term for filing them, which is 365 calendar days, following the date of occurrence of the tax obligation, reflected in the TI/CA, has remained unchanged.
An important change is that from now on, the taxpayer has the right to submit the explanations and copies of the documents for several TI / CAs at once, and not for each one separately, as it has been before. It should be noted that one of the following conditions must be observed for this:

  • TI/CA are issued for one recipient under the same contract;
  • the same operations are reflected in TI/CA (with the same codes of goods according to UСGFEA or service codes according to the State Classifier of Products and Services).

our opinion, such an innovation is quite correct, since a taxpayer will not spend a lot of time on multiple explanations and documents on a large number of TI/CA in relation to the same counterparty under a certain contract or on the same type of transactions, since it is more preferable to make it one “package”. In addition, it will simplify the consideration of this issue by the commissions that will not consider separately each TI/CA. Apparently, this should simplify the work with counterparties on long-term supply contracts.
The commissions which consider the explanations and copies of the documents on the “blocked” TI/CA have been changed. Now the commissions are divided into:

  1. Regional level commissions (the main departments of the SFS in the regions, Kyiv and the Office of major payers of the SFS).
  2. Central level commissions (State Fiscal Service).

The regional level commissions within 5 working days following the day of receipt of explanations and copies of documents:

  • make a decision;
  • register the decision in the register;
  • send a decision to the taxpayer on registration or refusal to register TI/CA.

The regional level commission has the right to perform these actions with respect to the taxpayers whose volume of supply specified in the TI/CA registered in the current month is less than 30 million UAH.
If the taxpayer has the volume of supply specified in the TI/CA registered in the current month, is more than 30 million UAH, then the regional level commission within 5 working days following the day of receipt of the explanations and copies of the documents:

  • makes decisions;
  • registers preliminarily the decision on registration or refusal to register TI/CA;
  • sends the decision to the central level commission.

The central level commission within 7 working days following the day of receipt of explanations and copies of documents, but not earlier than receiving a decision on registration or refusal to register TI/CA in a separate register of the regional level commission, may take a different decision on the registration or refusal to register TI/CA.
The decision taken by the central level commission is registered in a separate register and sent to the taxpayer, and the decision of the regional level commission is canceled.
It should be noted that all decisions come into force after their registration in the register. In this case, the register of TI/CA, which registration is suspended, will be published daily on the official website of the State Fiscal Service of Ukraine.
The situation when the central level commission did not take a decision regarding the registration of the TI/CA was also settled. In this case, the decision of the regional level commission enters into force from the day following the end of the 7-day period and is sent to the taxpayer, and the TI/CA is registered in the register.

Such two-level decision-making process on the registration of TI/CA can significantly complicate the administration of taxes for major taxpayers. In addition, such taxpayers will have legal uncertainty for some time. Since if the regional commission decides to register TI/CA, then there is a high probability that this decision will be canceled within the next 7 days. Unfortunately, this norm contains large corruption risks.

As before, the decision of blocking the TI/CA may be appealed in administrative or judicial order.
Administrative appeal has remained single-level, and the consideration of complaints is carried out by the Commission of the State Fiscal Service of Ukraine.
The complaint must be submitted within 10 calendar days from the day of entry into force of the decision of the commission.
But we should pay attention to the fact that now the complaint is filed electronically and the decision taken on the basis of its consideration is also sent to the taxpayer’s email address. Therefore it is very important to specify your email address in the complaint. You can get to know about the electronic communications, through which a complaint may be filed, on the official website of the SFS of Ukraine.
It is should be noted that, on considering a complaint, the SFS Commission of Ukraine verifies the documents attached to it for their validity by checking the data contained in such copies of the documents with the data that are received or may be obtained from other sources of information (registers maintained by state bodies, documents, in particular electronic ones).
It is very strange, but in this case, the commission of the SFS of Ukraine actually conducts a desk audit or a counter reconciliation, which are the functions not inherent to it.
Summarizing the above, you can pay attention to the following main changes that have occurred in the part of the “blocking/unlocking” the TI/CA:

  • division of commissions that decide to register TI/CA into central and regional ones;
  • opportunity to provide explanations and copies of the documents at once for several TI/CA;
  • two-tier system of decision-making on registration/refusal to register TI/CA (if the volume of supply is more than 30 million UAH);
  • filing a complaint and obtaining a decision of the SFS of Ukraine electronically.

It is still unknown how the updated system of “blocking” TI/CA will work and how much it will complicate or simplify the life of business. The specialists of Finance Business Service will monitor the development of the practice of applying the updated system and continue to provide effective advice and solutions to their customers.

In 2018, Estonia’s taxation system has been subjected to a number of changes. Here are the most significant of them:

  • A considerable leap in the registration threshold as a payer of sales tax from EUR 16,000 to EUR 40,000.
  • Reduction of the tax benefit on regularly paid dividends from 20% to 14%. For the first time, a reduced rate can be applied for dividend payments in the next year, taking into account that in 2018, the corresponding tax was levied at a rate of 20%. The benefit does not apply to the dividends received and already taxed. It also does not apply to the loans that are taxed as a hidden profit distribution. In 2019, the dividend amount will be taxed at a reduced rate, corresponding to one third of the dividends paid in the previous year. In 2020, this benefit will be applicable to the amount of dividends corresponding to one third of the dividends paid in 2019-2020, and in 2021 - to the amount equivalent to the average value of the dividends paid for the previous three years.
  • Introduction of new obligations for commercial organizations that issue loans to their stockholder, shareholder or member. We remind you that a commercial association pays income tax from such a loan, if the terms of the transaction indicate a possible hidden distribution of profits. In accordance with the adopted amendments, if the term for the payment of a given loan exceeds 48 months, the taxable person must provide the evidence:

    • intentions of the borrower to pay the loan;
    • the possibility of credit repayment

Confirmations must be submitted within 30 days at the request of the tax administrator.
The obligations extend to the loans, as well as conditions to them, issued/amended, starting on July 1, 2017. At the same time, to date, the law does not provide clear instruction on the implementation of the new rules.
There is also a requirement to provide the tax manager with a complete information on the issuance of loans / credits and their repayments by the 20th day of the month following the reporting quarter.

  • Adoption of 2% contribution rate on compulsory funded pension and the income amount, which is not subject to taxation by the income tax - from 0 to EUR 6 000 (for comparison, in 2017– EUR 2 160).
  • Introduction of the income tax on interest on deposits. At the same time, tax is not levied regarding the interest paid to the residents by the credit institutions - residents of the Member States of the EEC.
  • Increase of a monthly social tax rate from EUR 430 to EUR 470 and minimal social tax per month from EUR 141,90 to EUR 155,10.
  • The members of the governing and supervisory body, policymakers, individual-entrepreneurs, judicial officers, persons of creative industries and others, related to private entrepreneurs, are exempt from unemployment insurance premium.