A permanent establishment is a fixed place of business through which the business of a non-resident is carried out. The definition of the permanent establishment has been expanded by Ukraine’s 2020 Tax Reform in line with OECD standards and now includes the following:

A building site, a construction, assembly or installation project or related supervisory activities, if the duration of the work associated with the site, project, or activity is greater than twelve months (six months until 31 December 2019);
The provision of services, including consulting services but excluding the secondment of personnel, if such activities are carried out for more than 183 days in any 12-month period;
An agent (excluding an independent agent acting in the ordinary course of his business) performing any function on behalf of a person in Ukraine. As of 2020, an agency PE is deemed to exist notably if the agent concludes contracts or negotiates the essential aspects of contracts on behalf of the non-resident principal or (almost) exclusively acts for one principal. Criteria that can be used to determine that the agent is, in fact, a dependent agent include the following:

the non-resident principal issues mandatory instructions to the agent, including through electronic means;
the agent uses a corporate email address of the non-resident principal in its communications with the non-resident or potential clients; or
the agent maintains a stock of goods or merchandise for delivery on the instructions of the non-resident principal.

However, the following places do not constitute a permanent establishment for a foreign enterprise in Ukraine:

Using facilities for the storage or display of goods or merchandise owned by the enterprise;
Using a stock of goods or merchandise owned by the enterprise for storage or display;
Using an inventory of goods or merchandise owned by the enterprise for the sole purpose of being processed by another enterprise;
Using a fixed place of business for the sole purpose of purchasing merchandise or collecting information for the enterprise; or
Using a fixed place of business for carrying out activities of preparatory or auxiliary character.

The Ukraine State Fiscal Service has issued a guidance letter (2626/6/99-00-05-05-02-06/IPK of 1 July 2020) clarifying the application of the new rules for the determination of taxable income of a permanent establishment. The guidance provides that effective from 1 January 2021 (originally effective 23 May 2020), the taxable income of the permanent establishment is required to be calculated in accordance with the general procedure for corporate taxpayers while taking into account the arm's length principle (see Sec. 13.4.).

Effective 1 January 2021 (originally effective 23 May 2020), new anti-permanent establishment avoidance rules are introduced in Ukraine’s 2020 Tax Reform, including rules to counteract fragmentation or contract splitting schemes, based on recommended Action 7 of the BEPS project.

The new rules also mandate non-resident enterprises to register a permanent establishment with the tax authorities before commencing business activities in Ukraine, including non-residents considered to have registerable nexus with Ukraine. Any business activity which begins before being properly registered will be considered as tax evasion and attracts penalties. The Ukraine State Fiscal Service has issued guidance on the new registration requirements for permanent establishments.

Further to the above, it is clarified by the tax authorities that non-residents are required to register as corporate taxpayers at the location of the permanent establishment in Ukraine prior to engaging in any economic activity through the permanent establishment. Non-residents with a registered permanent establishment are obligated to submit prescribed documents to the tax authorities for registration as corporate taxpayers within a period of 3 months, i.e., from 1 January 2021 to 31 March 2021. Pursuant to the registration of non-resident, the permanent establishment is deregistered for corporate tax purposes. The permanent establishment will continue to be registered/deregistered with respect to other taxes subject to certain conditions for accreditation of PE as a separate sub-division of the non-resident.

Powerful Tax Solutions

Tax Rules Engine

Collaboration Tools

Latest Tax News