On October 30th 2019, the Ukrainian Parliament finally ratified the long-awaited Protocol (concluded in 2015 and ratified by the Cypriot Government in the same year), amending the Cyprus-Ukraine Double-Tax Treaty ("CY-UKR DTT"), thereby marking the finalization of formal internal procedures and thus enabling its entrance into force which is expected to happen on January 1, 2020.

The main amendments to the existing treaty cover – among other aspects – the taxation of repatriated dividends, interest and capital gains resulting from the sale of shares the value of which is mainly derived from immovable property.

The reduced 5% withholding tax ("WHT") rate on dividends can now be applied only if two conditions are simultaneously met:

1) At least 20% direct ownership of the capital in the distributing company and

2) If such ownership is in the form of shares acquisition or other rights of the distributing company, it should amount to at least EUR 100,000.

It must be noted that previously only one of the two above criteria was required. A 10% WHT rate will apply in all cases when the criteria are not fulfilled (previously 15%).

The WHT on interest will be raised to 5% (earlier only 2%).

Furthermore, few important clauses were added to article 13 of the CY-UKR DTT regulating the taxation of capital gains arising from the sale of shares of an entity, the value of which is mainly composed (at least 50%) of the immovable property located in the other state. So, according to the new rules, such gains will be taxed only in the state where property is located. Any other disposal of shares not specifically listed in the above-mentioned article should be taxed in the state of the alienator, provided the gain is subject to tax in that state.

Both countries have signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting ("MLI"), with Ukraine now awaiting for the entry into force (December 1, 2019) while Cyprus is awaiting the MLI's ratification. Since both states are in the list of the Covered Tax Agreements, more changes to the existing treaty are coming up, including the implementation of the Principal Purpose Test.

As the above amendments can potentially affect your business, we highly recommend that our clients seek assistance in reassessing their corporate structures and aligning them with the new rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.