This publication only covers transactions where the seller of the corporate rights is an individual.
When preparing the purchase and sale of corporate rights (shares in the authorised capital of an LLC, shares) of a Ukrainian company, it is imperative to consider the issue of taxation of such a transaction. After all, the notary does not act as a tax agent when notarising the deed, and the parties may receive income, the need to declare which and the corresponding taxation of which they may forget (or do not think about).
According to subparagraph 170.2.2. paragraph 170.2 of Article 170 of the Tax Code of Ukraine, investment profit is calculated as the positive difference between the income received by the seller from the sale of an investment asset, taking into account the exchange rate difference (if any) and its value, which is determined from the amount of documented expenses for the purchase of such an asset or the value of the investment asset according to the relevant tax return.
Thus, if the seller contributed one amount (for example, UAH 100,000) to the authorized capital as a contribution or paid the same amount when purchasing corporate rights, and then:
- sold the same corporate rights for the same amount (100,000 UAH), then no income arose;
- sold the same corporate rights for a larger sum (for example, 130,000 UAH), then the taxable income is equal to 30,000 UAH;
sold the same corporate rights for a smaller amount (80,000 UAH), then there is no income, but an investment loss arises, however, the buyer may have taxable income in the amount of 20,000 UAH.
According to subparagraph 170.2.1, paragraph 170.2, Article 170 of the Tax Code of Ukraine, the reporting period for financial transactions with investment assets is the year for which the tax return is filed.
Tax rate according to Article 167 of the Tax Code of Ukraine: 18%.
It should be taken into account that, according to subparagraph 170.2.8 paragraph 170.2 Article 170 of the Tax Code of Ukraine, investment income that does not exceed the amount specified in subparagraph 169.4.1 paragraph 169.4 of Article 169 of the Tax Code of Ukraine is not taxed and is not subject to declaration .
It should be taken into account that, according to subparagraph 170.2.8. paragraph 170.2 Article 170 of the Tax Code of Ukraine, investment income that does not exceed the amount specified in subparagraph 169.4.1 paragraph 169.4 of Article 169 of the Tax Code of Ukraine is not taxed and is not subject to declaration.
It is necessary to take into account that the taxation of the purchase and sale of affiliates, controlled foreign companies for such transactions may be different and requires a detailed analysis of the introductory conditions and consultation with a lawyer or auditor.
The purchase of company rights at a reduced price requires special attention and legal advice if 1) the seller’s investment costs were higher than the price under the sale and purchase agreement; and/or 2) the market value of the enterprise or enterprise rights is higher than the price of the corresponding enterprise rights under the sale and purchase agreement.
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