How to Properly Tax and Declare Dividends from a Foreign Company
3 June, 2024
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A Client approached Interlegal—a co-owner of a Cypriot company that is not a CFC—regarding the taxation and declaration of dividends received from the company. The company decided to pay out dividends, which the Client actually received in their bank account during the subsequent reporting period. The Client’s query concerned the correct declaration of these dividends and assistance with preparing and submitting the tax declaration to the tax authorities.
The Corporate and Taxes department analyzed the Client’s situation and prepared a consultation on the details of taxing foreign dividends and the procedure for declaring them in the annual tax return.
Dividends from the Client’s foreign company are considered foreign income for the Ukrainian resident. This foreign income is taxed in Ukraine at a rate of 9% personal income tax (PIT) and a 1.5% military tax.
Ukrainian tax legislation requires the Client, as a Ukrainian resident, to declare the received dividends and independently calculate and pay the PIT and military tax.
In the Client’s situation, the dividend accrual date and the actual payment date fell in different reporting years, raising the question of when the Client, as a Ukrainian resident, is required to declare these dividends. For foreign dividends, this obligation arises from the moment the dividends are credited (actually received) to the resident’s bank account in Ukraine.
Conversely, when Ukrainian companies pay dividends to individual shareholders, the Ukrainian company acts as the tax agent, responsible for calculating and withholding taxes on the payment. As a general rule, the tax agent must withhold PIT and military tax within 30 days of the accrual of dividends, even if not yet paid.
It is important to note that Cyprus does not impose a repatriation tax on dividends paid to individual shareholders of local companies; therefore, all taxes are paid entirely in the shareholder’s country of tax residence (in the Client’s case, Ukraine).
Our lawyers prepared the Client’s tax declaration regarding their property status and income and ensured its submission to the tax authorities. The Client’s declaration included a correct calculation and reporting of both the received dividends and the PIT and military tax withheld.
The Corporate and Taxes team at Interlegal will consult you on all matters of personal and corporate taxation and income declaration, prepare your personal tax return, calculate all necessary taxes, and ensure its submission to the tax authorities.
For further details, please contact Corporate & Taxes lawyer Dmytro Bondar.
