Repatriation Tax on Engineering Services: When You Must Pay — and When You Don’t
Working with foreign contractors is a common practice for Ukrainian businesses. But when it comes to so-called “engineering” services in agreements with non-residents, the question arises: should you pay the 15% repatriation tax? And what if the contractor doesn’t provide a certificate of tax residency?
Let’s break it down with the lawyers at GLS Law.
What Is “Engineering” Under the Tax Code?
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 “engineering” with the general business usage.
In the TCU, “engineering” refers to services related to project development, research, and consulting in construction, real estate, or technology.
In reality, however, contracts often label completely different services as “engineering” — such as equipment support, installation, configuration, or audits. That’s why it’s important to carefully analyze the contract content, not just the title.
When Is Repatriation Tax NOT Payable?
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.
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.
What this looks like in practice:
🔹 Contract is titled “Engineering Services Agreement”
🔹 The services involve technical inspection of equipment
🔹 No permanent establishment exists
🔹 A tax residency certificate is provided
➡️ Repatriation tax — NOT payable
What If There’s No Residency Certificate?
This is a common scenario. Either the contractor delays providing the certificate, or you didn’t request it early enough. What now?
Unfortunately, under a formal interpretation, the tax authorities have the right to assess the repatriation tax. However, at GLS Law, we offer alternative defense strategies:
🔸 Analyze the subject of the contract:
If the services don’t qualify as “engineering” under the TCU definition, they are not taxable under subparagraph 141.4.1. Our position: it’s not the label that matters — it’s the substance.
🔸 Determine the place where services were rendered:
If the services were performed entirely outside Ukraine, they may not be taxable in Ukraine under certain conditions.
🔸 Argue the income qualifies as a different type of active service:
Engineering under the TCU is a narrow category. For instance, installation or remote audit does not qualify as “engineering”.
In GLS Law’s experience, we have successfully argued in several cases that — even without a residency certificate — no taxable object existed, and therefore, the repatriation tax was not applicable.
Key Takeaways
✅ Not every “engineering” service triggers the repatriation tax
✅ Analyze the substance of the agreement, not just the title
✅ A tax residency certificate is your strongest defense
✅ Without it, you can still rely on contract content and TCU interpretation
Working with foreign contractors? Don’t take unnecessary risks — seek legal advice before signing.
