Working with foreign contractors is a common practice for Ukrainian businesses. But when it comes to so-called \u201cengineering\u201d services in agreements with non-residents, the question arises: should you pay the 15% repatriation tax? And what if the contractor doesn\u2019t provide a certificate of tax residency?<\/p>\n\n\n\n
Let\u2019s break it down with the lawyers at GLS Law<\/strong>.<\/p>\n\n\n\n According to subparagraph 141.4.1 of the Tax Code of Ukraine (TCU), payments to non-residents for certain services are subject to a 15% repatriation tax. These services include, among others, engineering services. But it’s crucial not to confuse the tax definition of \u201cengineering\u201d with the general business usage.<\/p>\n\n\n\n In the TCU, \u201cengineering\u201d refers to services related to project development, research, and consulting in construction, real estate, or technology.<\/p>\n\n\n\n In reality, however, contracts often label completely different services as \u201cengineering\u201d \u2014 such as equipment support, installation, configuration, or audits. That\u2019s why it\u2019s important to carefully analyze the contract content, not just the title.<\/p>\n\n\n\n The key to exemption from the 15% tax is a valid tax residency certificate from the foreign contractor and the proper application of a double taxation avoidance treaty.<\/p>\n\n\n\n For example, if your contractor is a German company (with which Ukraine has a valid tax treaty) and provides a residency certificate, you can invoke Article 7 of that treaty. In this case, the income under the contract is not taxable in Ukraine, provided there is no permanent establishment.<\/p>\n\n\n\n What this looks like in practice:<\/strong> \u27a1\ufe0f Repatriation tax \u2014 NOT payable<\/p>\n\n\n\n This is a common scenario. Either the contractor delays providing the certificate, or you didn\u2019t request it early enough. What now?<\/p>\n\n\n\n Unfortunately, under a formal interpretation, the tax authorities have the right to assess the repatriation tax. However, at GLS Law<\/strong>, we offer alternative defense strategies:<\/p>\n\n\n\n \ud83d\udd38 Analyze the subject of the contract:<\/strong> \ud83d\udd38 Determine the place where services were rendered:<\/strong> \ud83d\udd38 Argue the income qualifies as a different type of active service:<\/strong> In GLS Law’s experience, we have successfully argued in several cases that \u2014 even without a residency certificate \u2014 no taxable object existed, and therefore, the repatriation tax was not applicable.<\/p>\n\n\n\n \u2705 Not every \u201cengineering\u201d service triggers the repatriation tax Working with foreign contractors? Don\u2019t take unnecessary risks \u2014 seek legal advice before signing.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" Working with foreign contractors is a common practice for Ukrainian businesses. But when it comes to so-called \u201cengineering\u201d services in agreements with non-residents, the question arises: should you pay the 15% repatriation tax? And what if the contractor doesn\u2019t provide a certificate of tax residency? Let\u2019s break it down with the lawyers at GLS Law. […]<\/p>\n","protected":false},"author":4,"featured_media":12746,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[285],"tags":[],"class_list":["post-12752","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-a-broader-topic"],"_links":{"self":[{"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/posts\/12752","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/comments?post=12752"}],"version-history":[{"count":1,"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/posts\/12752\/revisions"}],"predecessor-version":[{"id":12753,"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/posts\/12752\/revisions\/12753"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/media\/12746"}],"wp:attachment":[{"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/media?parent=12752"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/categories?post=12752"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/tags?post=12752"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}What Is \u201cEngineering\u201d Under the Tax Code?<\/h3>\n\n\n\n
When Is Repatriation Tax NOT Payable?<\/h3>\n\n\n\n
\ud83d\udd39 Contract is titled \u201cEngineering Services Agreement\u201d
\ud83d\udd39 The services involve technical inspection of equipment
\ud83d\udd39 No permanent establishment exists
\ud83d\udd39 A tax residency certificate is provided<\/p>\n\n\n\nWhat If There\u2019s No Residency Certificate?<\/h3>\n\n\n\n
If the services don\u2019t qualify as \u201cengineering\u201d under the TCU definition, they are not taxable under subparagraph 141.4.1. Our position: it\u2019s not the label that matters \u2014 it\u2019s the substance.<\/p>\n\n\n\n
If the services were performed entirely outside Ukraine, they may not be taxable in Ukraine under certain conditions.<\/p>\n\n\n\n
Engineering under the TCU is a narrow category. For instance, installation or remote audit does not qualify as \u201cengineering\u201d.<\/p>\n\n\n\nKey Takeaways<\/h3>\n\n\n\n
\u2705 Analyze the substance of the agreement, not just the title
\u2705 A tax residency certificate is your strongest defense
\u2705 Without it, you can still rely on contract content and TCU interpretation<\/p>\n\n\n\n