The New List of “Low-Tax” Jurisdictions: What’s Changed and How It Affects Business?
📢 The Cabinet of Ministers of Ukraine has updated the list of jurisdictions considered “low-tax.” This is a significant event for businesses, as the new criteria simplify determining tax consequences and reduce corporate expenses. In this article, we’ll explore what has changed, its implications for businesses, and how to adapt to the new conditions.
What’s New in the List?
In the latest revision, several countries have been removed from the “low-tax” jurisdiction list, including:
- Cyprus
- UAE
- Ireland
- Moldova
- Uzbekistan
These changes result from a review of criteria in Ukraine’s Tax Code (TCU). The new requirements reflect current economic realities and international standards, making the list more relevant to modern conditions.
What Does This Mean for Businesses?
1. Simplified Compliance
Working with jurisdictions no longer considered “low-tax” now involves fewer reporting requirements and costs, including:
- Less documentation for transfer pricing (TP): There’s no longer a need to prepare TP documentation for transactions with counterparties in the removed jurisdictions.
- No 30% adjustment: Expenses related to transactions with these jurisdictions are no longer subject to a 30% adjustment for corporate income tax.
- Easier Controlled Foreign Company (CFC) compliance: Companies linked to these countries no longer need to prepare additional TP documentation.
2. Reduced Administrative Burden
Businesses are no longer required to justify the economic feasibility of transactions with jurisdictions removed from the list. This reduces the risk of fines for potential tax rule violations.
Updated Criteria for Related Parties
In addition to changes in the list of jurisdictions, the criteria for determining related parties have also been updated:
- Increased minimum ownership threshold: The threshold has been raised from 20% to 25% corporate rights ownership.
- Added economic criteria: Not only formal legal connections but also economic interdependence are now considered.
These updates enable a more precise assessment of related-party relationships, crucial for transfer pricing and reporting.
How to Prepare for the Changes?
Our team of lawyers and auditors recommends the following:
- Conduct a Counterparty Inventory
- Review whether your counterparts meet the new “low-tax” criteria.
- Update TP Documentation
- Consider that some transactions are no longer subject to additional scrutiny.
- Evaluate Business Ownership Structure
- If your business operates internationally, analyze whether your corporate links align with the updated related-party criteria.
How Can We Help?
At GLS, our lawyers and auditors are ready to assist you with:
- Conducting audits of counterparties for compliance with the updated criteria.
- Preparing documentation for transfer pricing compliance.
- Advising on optimizing tax costs and mitigating risks.
Together, we’ll help you succeed in international markets! 🌍
