On the 4th and 11th of July, 2017 the Cabinet of Ministers of Latvia approved a number of draft laws providing for the significant changes in the tax legislation of the country which will enter into force on January 1, 2018. The most significant of them will be the application of the CIT 0% rate for the reinvested profits. In other words, the enterprise will be subject to the corporate income tax only if it pays dividends or other payments for the purpose of actual distribution of the profits (conditionally distributed profit).

Therefore since 2018, the company's profits are exempted from CIT, but it has to pay 20% of the income tax from the amount of dividends. At the same time, the shareholders will not have to pay personal income tax (PIT). Although, according to the bill, the CIT rate is 20%, and the tax base should be divided by a factor of 0.8, the effective tax rate actually equals 25%. It is notably that CIT will be applied not only to the dividends in the traditional sense, but also to the "deemed dividends", which are considered a new concept in Latvian tax legislation, and comparable with the dividends to the costs. Here it is important to note that the last ones include the credits to the related companies, with the exception of cases provided for by law. The conditional dividends make up the reduction of the authorized capital (including in case of the liquidation of the enterprise), previously increased due to retained earnings, tax-exempt in accordance with the current CIT regime.

The new taxation system supports a number of existing tax benefits, as well as it provides for the possibility to distribute the profits "backdating" without paying 20% ​​of corporate tax and use accrued tax losses. As for the last ones, the companies will be allowed to use only 15% of CIT losses for a period of 5 years, beginning since 2018. These losses can facilitate in reducing the corporate tax on dividends, but not more than 50%.

Similarly, a slightly modified version of the best international advantages of Latvia will be retained: the received dividends will not be taxed within the framework of the Latvian legislation if they are taxable in the country of registration. The share disposals will not be subject to CIT unless the company has held the disposed-of shares for less than 36 months.

According to the new taxation system, the tax period will make up one month (some deviations are stipulated regarding the conditionally distributed profit that will be calculated and included in the tax return for the last month of the reporting year). That is, it is assumed that the tax returns for the previous month should be filed by the 20th of the current month. The companies which reporting period differs from the calendar year will be required to prepare an intermediate report as of December 31, 2017.

Dividend payment

May 27, 2016 came into force The order payment of dividends by joint stock company, which is approved by the National Commission on securities and stock market from 12.04.2016 number 391.

In particular, on the relevant general meeting of shareholders is defined by a specific method of payment of dividends concerning the entire issue of shares - through the depository system of Ukraine or directly to shareholders.

Implementation of dividend payments by joint stock company is going through the payment of the entire amount in full or in part, certainly if it is provided by the general meeting of shareholders or the supervisory board of the company.

At the same time, in the case of decision-making by the joint stock company to pay dividends to shares, the payment could made proportionally and simultaneously to all persons who are entitled to receive dividends.

  1. Regarding the payment of dividends directly to shareholders.
  2. Payment of dividends to shareholders who are entitled, namely the transfer of the amounts of funds to all shareholders shall be effected by the transfer of funds to the shareholders during the relevant time and date that does not exceed six months from the date of the decision general meeting of shareholders of dividend payment. However, the general meeting may decide to pay dividends in shorter time.

    In addition, if a shareholder during a period of six months what prescribed by law or any other period specified by the general meeting, and also for three working days after the expiry of such terms are not applied to the company regarding the payment of dividends, the appropriate money will be sent to the depository system of Ukraine, where it will remain until the moment of payment.

  3. Regarding the payment of dividends by the depository system of Ukraine.

    Conventionally, the payment of dividends by the depository system can divided into the following stages:

    1. Crediting of joint stock Company in Central Depository cash account at the Clearing House;
    2. Providing relevant central depository settlement documents to the Clearing Centre to transfer funds on deposit accounts of depository institutions (banks or other institutions that provide services of custody, opening and management of the invoices).
    3. Depository institutions issued an order for the payment of dividends.
    4. Implementation of dividend payments depository institutions.
  4. Additionally, note that dividends may also be other persons entitled to receive dividends, subject to the relevant documents (originals or copies) certifying that person's right to receive dividends.

    Accordingly, we can conclude that these changes will joint stock companies to choose a convenient way to pay dividends to shareholders, which is a positive step in the development of Ukrainian business.

    Author: Sergey Panov

    managing partner Finance Business Service

Dividends

In this article, we propose to consider the main issues related to the payment of dividends to non-residents of Ukraine, that is, the individuals / juridical persons who are representatives of other states.

First of all, it should be noted that Ukrainian law provides the right of foreign investors to ensure they receive all the profits obtained in our country legally. This immediately indicates that the resident of Ukraine, being the actual issuer of corporate rights, who carries out the payment of dividends to non-residents, is subject to the general legislation on taxation. That means that regardless of the fact to whom the payment of dividends is made, the issuer is obliged to pay an advance fee of 25% without reducing the amount of dividends. International agreements related to the elimination or reduction of double taxation of income does not apply to this payment.


Now let's discuss in more details the payment of dividends to legal entities which are non-residents of Ukraine.

First of all, we emphasize that when paying dividends to non-resident, who is in fact a legal entity, but has no such status, the issuer of corporate rights is obliged to withdraw 15% withholding tax from this payment. Revocation of such taxation is possible only if there are any additional agreements between the states. Most often, these agreements are related to the exemption of non-residents from double taxation. In this case, the recipient of the dividends is obliged to present a special certificate of residence. The certificate or a certified copy is available to the enterprise that pays dividends. It should be noted that the validity of a certificate is limited to the tax year in which it was issued. Further, the company issuing the document provides the tax authorities together with the completed tax reports on payments made to non-residents.

In those situations when the company-issuer does not use the benefits of an international agreement when paying dividends, and 15% were charged, a non-resident may submit an application to the tax authority at the location of the payer. After the necessary checks, in case of a mistake, the charged funds will be returned.

Now a few words about the payment of dividends to individuals who are non-residents of Ukraine.

Everything is much easier here. Non-residents are individuals who are subject to the same taxes as residents of Ukraine (at the rate of 15%). Control of the deduction of this amount carries an enterprise, which is the issuer of corporate rights. However, in cases where there is an agreement of exemption from double taxation between the states, an individual - non-resident has a right to file a certificate similar to the one which was discussed above. Thus, there is also an opportunity to free themselves from unnecessary costs. However, when it comes to natural persons, such actions do not always bring tangible benefits. In this situation only the high quality and professional accounting analysis can help to assess the relevance of the actions.

Author: Yuri Krasilnikov

managing partner Finance Business Service