Taxes

Corporate Taxes at a Glance

Tax Clarifications

Taxpayers may obtain up-front clarifications from the tax authorities on tax-related issues that lack legal clarity. Such clarifications are not binding. However, if a taxpayer follows a tax clarification addressed to it or otherwise a generalized tax clarification, it shall be released from penalties and sanctions should such clarifications be cancelled or amended by the tax authorities (e.g., due to a change in attitude towards the issue clarified). In other terms, tax clarifications may be used as a protection or risk-reducing tool with regard to ambiguous tax matters. However, it should also be noted that tax clarifications are in no way binding for courts that consider tax disputes.

Appeals

If the tax authorities reassess taxes, the taxpayer may appeal against such tax reassessment either directly to the court or to the tax inspectorate. Appealing to the tax authorities is an extra option for a taxpayer before going to court. If the local tax inspectorate upholds its decision to reassess taxes, the taxpayer may go to the higher echelons of the tax authorities, up to the State Tax Administration of Ukraine (the STAU), the highest tax body of Ukraine. The STAU makes final decisions in the administrative tax appeal procedure. The taxpayer has the right to bring the dispute to court at any stage of the tax appeal procedure.

Taxes on Corporate Income and Gains, Payers of Corporate Profit Tax

The following must pay corporate profit tax (CPT):

• Ukrainian legal entities.
• Branches of a Ukrainian legal entity situated in an administrative area other than that of the head office.
• Permanent establishments (commercial representations) of foreign companies.
• Foreign legal entities (FLE) and individuals that receive income from sources in Ukraine.

Ukrainian Legal Entities (ULE)

A ULE is taxed on its worldwide income. Ukrainian law provides for no consolidation or group relief for tax purposes; each legal entity within a group is a separate taxpayer.

Permanent Establishments of Foreign Legal Entities

A permanent establishment (PE) of a FLE in Ukraine is a fixed place of business through which the foreign entity fully or partly carries out its business activity in Ukraine. PEs may include a place of management, a branch, an office, a plant, a factory, a workshop, a mine, an oil or gas well, a quarry or other place of exploration or production of mineral resources, other places of business of foreign entities. Such business may include the use of subsurface resources, construction, assembly, sales of goods from warehouses located in Ukraine, performance of work, rendering of services, etc.

A PE is established when business activities are regularly carried out through a fixed place of business. The term regularly is not expressly defined; thus, the matter of whether an activity creates a PE for a FLE has been created as a result of an entity’s activities is considered on a case-by-case basis.

In practice, representative offices of foreign entities acting in Ukraine (regardless of the nature and the scope of their activities) are considered as permanent establishments by default. Accordingly, all representative offices of foreign entities should register with the Ukrainian tax authorities prior to beginning their activity in Ukraine. However, the permanent establishment status of such representative offices may be overruled by an applicable Double Tax Treaty.

Corporate Profit Tax Base

For a ULE, the object of taxation is profit, which is defined as gross income less allowable deductions (deductible expenses) and less depreciation charges for the reporting period. As a rule, both taxable income and deductible expenses are recorded upon the earlier of two events: either payment or delivery (the first-event rule), with certain exceptions (see below for more details).

Corporate Profit Tax Rate

The basic tax rate is currently 25 percent. Special rates apply to certain types of income (e.g. income from insurance is taxable at the rate of 3 percent).

Certain types of income received by non-residents from Ukrainian sources are subject to withholding tax. See below for more details.

Tax Incentives and Exemptions

Ukrainian legislation establishes a list of CPT exemptions and privileges which includes, among others, exemption from CPT on income received from the sale of children’s food of internal production and income of publishers received from publishing books which have been printed in Ukraine.

Investment Income/Loss

Upon payment of dividends, a Ukrainian company which distributes profit must pay an advance CPT in the amount of 25 percent of the dividends, assessed in addition to the total amount of dividends for distribution. Such advance payment shall be made on or prior to the date of payment of dividends. Advance CPT may offset the regular CPT liability of the dividend payer of the reporting quarter where dividends have been paid. The CPT advance payment is not due if dividends are reinvested, unless reinvestment of dividends changes the share of the shareholders of the Ukrainian company which distributes dividends.

Dividends paid to non-residents are taxed more heavily than those paid to resident shareholders. Namely, in addition to the advance CPT, the dividend payer must also remit 15 percent withholding tax to the budget, unless a double-tax treaty provides otherwise.

Capital gains on transactions with securities are subject to taxation at a standard tax rate of 25 percent. Capital losses may be carried forward and offset against the gains derived from trading in the same type of securities or derivatives during the following reporting quarter(s).

Capital gains from securities transactions received by an FLE are considered income from a Ukrainian source and are subject to a 15 percent withholding tax. However, capital gains derived by an FLE on transactions with interest-free bonds and state treasury bills are taxed at 25 percent. An FLE is allowed to trade in such interest-free bonds and/or treasury bills only through its Ukrainian permanent establishment or through an agent, which is responsible for payment of the tax to the budget.

Gains/Losses on Disposal of Fixed Assets

Gains derived from the sale of fixed assets are subject to CPT at a standard rate of 25 percent.

The rules for calculation of gains from the sale of fixed assets depend on the group of the fixed assets for tax depreciation purposes.

Specifically, calculation of capital gain with regard to the assets listed in the first depreciation group (immovable property) differs from those for calculating gains listed in all other groups. As far as capital assets of the first depreciation group (immovable property, except land plots) are concerned, taxable gains are calculated as the difference between the book (residual) value of the specific asset and sale proceeds. Capital losses on disposal of capital assets from the first tax depreciation group are deductible.

In regards to the assets of other groups (machinery, office equipment, vehicles, etc.), depreciation is not calculated on an item-by-item basis. Upon sale of an asset listed in other depreciation groups, the amount of sale is deducted from the total book value of the relevant group of fixed assets. Taxable capital gains arise only if the amount of sale exceeds the book value of the relevant depreciation group.

Administration

Taxpayers must submit returns for each quarter and also an annual tax return. The returns are due within 40 calendar days following the last day of the reporting (tax) period.

The taxpayer shall pay the amount of CPT recorded in the tax return within 10 calendar days following the last day of the period established for submission of such tax return.

Branches

As a general rule, branches situated in administrative areas other than that of the head office (ULE) are deemed separate taxpayers. The CPT law allows consolidated tax payments by ULEs with branches in different districts.

When making a consolidated tax payment, the ULE pays the CPT for its branches. The amount of CPT due from the branches is determined based on the total amount of CPT due from the ULE for the reporting period, proportionally divided between the branches and the ULE itself, depending on the share of each branch’s deductible expenses and depreciation charges in the total amount of deductible expenses and depreciation charges.

Tax Accounting

Under Ukrainian tax accounting regulations, taxable income and deductible expenses are recognized based on the earlier of two events: payment or delivery (the first event rule). Certain exceptions apply to transactions of a taxpayer with non-residents, residents exempt from corporate profit tax, or those paying the tax at a reduced rate. In such a case, the deductible expenses may be recorded only upon delivery of goods (work, services), regardless of the time of payment. It is a general rule that all expenses claimed as deductible should be properly supported by the respective primary documents (e.g., agreements, invoices, bills of lading, consignments, etc.). Expenditures not substantiated by the proper documentation may not be deducted.

Foreign Tax Relief

Taxes paid by a ULE on profits received from foreign sources can be credited against the Ukrainian CPT to be paid by the ULE. The amount of tax paid outside Ukraine within the reporting period available for credit relief may not exceed the amount of tax payable in Ukraine for the period. Foreign tax relief is allowed if there is a Double Tax Treaty in force between Ukraine and the relevant foreign jurisdiction.

The Ukrainian CPT law establishes that certain taxes paid in foreign countries may not be credited against the Ukrainian CPT (i.e., taxes on capital and capital gains; postal, sales and other indirect taxes; and taxes paid on passive income).

Calculation of Taxable Profit

Taxable Profit

The taxable profit of a ULE is defined as gross income less gross expenses, less depreciation charges. Gross income includes income from all types of activity received over the reporting period such as cash, tangible or intangible assets, except certain items specifically exempt. Gross income includes the so-called “non-returnable financial aid,” e.g., gifts received, debts remaining uncollected after the expiration of the statute of limitation, and funds received without established terms for repayment.

Returnable financial aid, i.e., interest free loans provided by a non-resident or other person who is not a CPT payer, is also added to income if not repaid by the end of the reporting period when received. It is tax deductible only in the reporting period when it is repaid.

Deductible Expenses and Losses

The CPT law generally allows all reasonable business expenses (such as lease, payroll-related payments, acquisition of business-related goods, work and services, etc.) as deductions, with the exception of those explicitly not allowed or restricted by law.

Not allowed or restricted expenses include, among others, the following:

• Contractual penalties and fines are non-deductible.
• Representation and promotional expenses are deductible in an amount not exceeding 2 percent of the taxpayer’s taxable profit for the previous tax year.
• Expenses for training employees (both in Ukraine and abroad) are deductible by an amount not exceeding 3 percent of the payroll fund.
• Fixed asset repairs and maintenance costs are deductible by an amount not exceeding 10 percent of the total book (residual) value of the fixed assets at the beginning of the reporting period.
• Expenses related to warranty repairs are limited to 10 percent of the value of the warranted goods (work, services) sold.
• Certain timing limitations exist with respect to deductibility of interest payable by companies with 50 percent or more foreign participation to their non-resident shareholders or their related parties. Interest expenses not allowed for deduction in a reporting period may be carried forward to subsequent periods, subject, however, to the same limitation.
• 50 percent of the cost of operational lease and fuel for automobiles (whether owned or leased) are deductible.

A specific deductibility restriction applies to payments to non-residents in offshore locations. Such payments can be deducted only in the amount of 85 percent of their total amount. The Cabinet of Ministers of Ukraine establishes an exhaustive list of offshore locations.

Losses Carry Forward/Carry Back

Tax losses generated after January 1, 2005 can be carried forward for an unlimited period of time. Losses accumulated during earlier periods may not be carried forward starting January 1, 2006.

The CPT law does not provide for carry back of tax losses.

Tax Depreciation

Under Ukrainian legislation, for tax depreciation purposes fixed assets are divided into four groups. Depreciation rates for each group of fixed assets are summarized in the table below. For the purposes of calculating tax depreciation, a declining balance method is used.

Intangible assets are depreciated separately from fixed assets under the straight-line depreciation method (i.e., in equal shares per each tax period). Taxpayers may establish the depreciation period for intangible assets; however, such a period may not exceed 10 years.

Transfer Pricing Regulations

The CPT law provides for special transfer pricing regulations in respect to taxable transactions with related (affiliated) parties. Transfer pricing provisions allow the tax authorities to adjust contract prices up to the market level for tax purposes. The fair market price is deemed to be the arm’s length price between non-affiliated entities in fair market conditions.

It should be noted that transfer pricing regulations have not been especially effective in the past due to the lack of an established mechanism for application, as well as to a lack of independent market price information for applying transfer pricing regulations.

Since 2003 there have been significant developments in transfer pricing regulations. A more detailed mechanism for determining arm’s length price has been introduced. Notably, the burden of proof that the actual (contractual) price does not conform to the arm’s length price has shifted to the tax authorities. In order to reassess tax underpayment or to accuse a taxpayer of tax evasion for not using arm’s length prices, the tax authorities must bring the case to court.

Other Significant Taxes

Value Added Tax (VAT)

Payers of VAT

• Legal entities and entrepreneurs, including single tax payers, permanent establishments of non-residents, joint ventures, with domestic supplies of goods (work, services), the value of which exceeded UAH 300,000 (approximately USD 59,406 or EUR 49,234) within any period in the last 12 calendar months.
• Legal entities and individuals that import goods (work, services) into Ukraine.
• Persons performing e-trade on the territory of Ukraine.

Object of Taxation

The following transactions are subject to VAT:

• Supply of goods and services on the customs territory of Ukraine, including transfer of fixed assets under financial lease agreements.
• Import of goods (ancillary services) into Ukraine (including importation of property under lease agreements, importation and transfer of fixed assets to the charter fund of a legal entity).
• Export of goods (ancillary services), including export of capital assets under financial lease agreements.
• Barter transactions and disposals without consideration.
• Voluntary liquidation of fixed assets.

The Law of Ukraine On Value Added Tax (the VAT law) provides for a list of transactions that are not subject to VAT (the majority of bank transactions, issue and alienation of corporate rights provided that settlements for corporate rights are made in cash); interest or commission included in financial lease payments within the limits of the double NBU’s discount rate for the value of leased assets; etc.). The VAT law also establishes the list of transactions that are VAT exempt.

Base of Taxation

As a rule, VAT on supply of goods (services) is charged by the supplier on top of the contract value of supply. If, however, the contract price of goods (services) is lower compared to the arm’s length price, VAT is charged on the top of arm’s length price.

Tax Rates

Domestic supplies of goods (services), import of goods and ancillary services in Ukraine, the supply of services with the place of supply is the customs territory of Ukraine by non-residents are subject to VAT at the standard rate of 20 percent. Export of goods and ancillary services is taxed at a zero-percent rate. Ancillary services are services where the value is included in the customs value of goods (transport, shipping insurance etc).

Registration

VAT payers must register with the tax authorities. Such registration is vital as only registered taxpayers can issue VAT vouchers, and VAT credit (recovery of input VAT) is only available if substantiated by a valid VAT voucher. However, bills, cash receipts, hotel bills, and transport tickets are also acceptable for claiming VAT credit in certain cases.

Import

For imported goods, the VAT base is generally the contractual value, which, however, cannot be lower than the customs value as stated in the customs cargo declaration, including all charges for transportation, insurance, customs duty and excise tax (where applicable). Customs authorities may determine the customs value of the imported goods themselves if they deem that the value declared by the importer in the customs cargo declaration is not justified.

Place of Supply

The VAT law establishes rules for determining the place of supply.

The general rule defines the place of supply of goods as the place of its dispatch or assembling. The law provides for special rules for the place of supply of immovable assets; the place of supply for e-trade is the location of the supplier.

Taxation of services also depends on the place of supply. According to the general rule, the place of supply of services is defined as the location of the supplier. If, however, the supplier is not a resident of Ukraine, the place of supply of services is determined after a number of tests: the location of a representative office of such a non-resident of Ukraine, location of a Ukrainian agent, if the non-resident entity has no permanent establishment in Ukraine. Finally, if the non-resident supplier of services does not have either a representative office or a Ukrainian agent, the services would be supplied at the location of the Ukrainian client. In the latter case, the Ukrainian client is deemed the tax agent of non-resident supplier for VAT purposes. Besides; the Law provides for the specific place of supply for real estate services - the location of the real estate; for cultural, education services, etc. - the place of the actual rendering of services, etc.

At present, any services supplied within the territory of Ukraine are subject to VAT at 20 percent. Input VAT paid upon acquisition of services may be recovered provided that the services are intended to be used in taxable operations within the framework of business activities by the service recipient. If the place of supply of services is not within the territory of Ukraine, these services are not subject to VAT. In such a case, the service provider shall not be eligible for a VAT credit.

Moment When Tax Arises

The tax liability on domestic supplies of goods (services) arises either upon receipt of payment for or upon dispatch of the goods (rendering of services), depending on which event occurs first.

For the import of goods, VAT liability arises on the date of submission of the customs cargo declaration.

The date of advance payment for exported or imported goods is not deemed to be the date when VAT liabilities arise.

Calculation of VAT

VAT due to the budget is calculated as the difference between VAT collected from customers for goods (services) sold and VAT paid to suppliers (VAT credit).

Only those who are registered with the tax authorities as VAT payers are allowed to claim VAT credit. The VAT credit is available in respect of VAT incurred while purchasing goods (services) intended to be used in taxable transactions within the framework of business activity of such a taxpayer. VAT credit is not available if goods (services) are intended to be used in transactions not subject to or exempt from VAT pro rata to the volume of taxable/non-taxable operations (this is often the case for banking institutions, whose services are in large part not subject to VAT). For the purposes of VAT, the goods (services) are deemed to be sold in the period when used in non-taxable transactions. Accordingly, the “seller” must record VAT liability.

In 2005, the rules for VAT refund changed considerably. Currently, if VAT credit exceeds VAT liability in a reporting month, the outstanding amount is carried forward to be offset against VAT liabilities of the following month. If VAT credit exceeds VAT liability in the second consecutive month, the taxpayer may claim a cash VAT refund for the amount of VAT actually paid to suppliers of such goods (services) in the previous tax period. The remaining VAT input is carried forward to be offset against VAT liabilities of the next reporting period.

The effective wording of the VAT law lays down certain restrictions with regard to eligibility for cash refunds of VAT. Thus, taxpayers who have been registered as VAT-payers for less than 12 months as of the date of submission of cash VAT refund application are not eligible for a cash VAT refund. Likewise, a cash VAT refund is not allowed for taxpayers who had VAT-able sales during the 12 previous calendar months lower than the refund claimed (this rule does not apply to purchase or construction of fixed assets). Finally, taxpayers who were not been engaged in VAT-able transactions during the 12 previous months may not claim a VAT refund either.

All VAT-able transactions must be properly supported by tax vouchers (to be treated as a tax credit, VAT paid to suppliers should be properly supported by tax vouchers). Only registered VAT payers may issue VAT vouchers.

Local taxpayers importing services who are deemed tax agents of non-resident service suppliers may self-issue VAT vouchers.

When importing goods, taxpayers are entitled to pay VAT either in cash or by promissory note with a bank guarantee (aval). Promissory notes are disallowed for VAT payers who have been registered for less than 12 months, import of excisable goods, and import of groups one through 24 of the Harmonized Classification of Goods (mostly food and tobacco products).

Payment and Filing Procedures

The tax period for VAT payers with VAT-able operations for the previous calendar year in excess of UAH 300,000 (approximately USD 59,406 or EUR 49,234) is a calendar month. All other taxpayers may choose between a month and a quarter as tax periods.

Separate subdivisions of an entity are not required to calculate and pay VAT. It is the liability of the head office.

Customs Duty

Normally, customs duty is due upon the import of goods and is payable during customs clearance procedures. Customs duty is calculated based on the customs value of the imported goods, which includes the contractual value of the goods and all other actual expenses related to their importation.

Ukrainian regulations establish rates of customs duty in fixed amounts – in euros or as a percentage of the price of those goods being imported – depending on the nature of the imported goods (using the Harmonized System of Description and Coding of Goods) and country of origin. There are three types of import customs duty rates: full, privileged and preferential. Applicability of rates depends on the existence of treaty between Ukraine and the country of origin of the goods. Thus, preferential import customs duty rates (duty exemption) apply to the goods originating from the states Ukraine has a free trade regime with. Privileged import customs duty rates apply to goods originating from the states Ukraine grants most favored nation (MFN) treatment to. Other goods are subject to import customs duties at full rates.

In certain cases an importer may be exempt from customs duty if the goods imported are under a temporary importation regime (for instance, in the case of leasing). Assets (except for goods for disposal or for own use) contributed to the charter capital of company with foreign participation by its foreign shareholder are also exempt from import duties.

Excise Duty

Excise duty is payable on domestic sales and import of certain goods. Excisable goods include alcohol, tobacco, cars and motorcycles, petrol, fuel and diesel fuel. Excise duty rates are established in Euro or Ukrainian Hryvnia per unit or as a percentage of sales.

Excise duty is deductible for CPT purposes.

Tax on Vehicle Owners

The payers of this tax are legal entities and individual owners of vehicles registered in Ukraine. The tax rates are established in Hryvnia and vary depending on the engine volume of the vehicle. Legal entities pay the tax on a quarterly basis. The tax should be paid for all vehicles registered by the legal entity as of January 1 of the current year, regardless of the fact that the vehicles might be sold or irreparably damaged during such year.

Other State Taxes

Other state taxes payable by companies in Ukraine include land tax, levy on use of natural resources, pollution contribution, etc.

Local Taxes

Advertising Tax

This tax is payable on the value of advertising services when paying for the service. The amount of tax may not exceed 0.1 percent of the value of the services for placement of a one-time advertisement or 0.5 percent of the value of the services for placement of a multiple- or long-term advertisement. The local authorities are entitled to establish tax rates lower than those stated above.

Municipal Tax

Municipal tax is paid by legal entities to the local budgets of their place of registration based to the rules established by local municipal bodies. The tax is payable monthly per employee.

The maximum monthly amount of municipal tax shall not exceed UAH 1.70 (approximately USD 0.34 or EUR 0.28) per employee. Local authorities may establish a lower municipal tax rate.

Other Local Taxes

Other local taxes are contributed for the use of local symbols, car-parking contribution, etc.

Miscellaneous Tax Matters

Withholding Tax

Withholding tax applies to income received by non-residents from sources in Ukraine. Specifically, a withholding tax applies to dividends, interest, royalties, engineering services and some other income at a 15-percent rate, unless an applicable Double Tax Treaty provides otherwise.

Freight income is subject to withholding tax at a 6-percent rate.

Income from advertising fees is subject to tax at 20 percent; notably, this tax is payable at the expense of the Ukrainian recipient of advertising services.

Re-insurance premiums received by foreign entities are subject to a 3-percent tax, paid at the expense of the Ukrainian re-insurance service recipient. This income may be exempt from taxation if the insurers/re-insurers are recognized as financially reliable by the Ukrainian financial market’s governmental body.

Treaty Relief

Ukraine has entered into a number of tax treaties to avoid double taxation. Generally, these treaties provide for a more favorable tax treatment for non-residents as compared to Ukrainian legislation. Most Double Tax Treaties reduce withholding tax rate or grant an upfront relief in regard to withholding tax on dividends, interest and royalties, as well as exempt from tax on income that is taxable under domestic law (e.g., income from engineering services, capital gains from trading in securities (with certain exceptions), etc.).

In order to benefit from treaty protection, the non-resident should supply a tax residency certificate to its Ukrainian counterpart from the tax authorities of the country of its residence and provide it to the Ukrainian taxpayer (entity paying for goods (work, services) received from the foreign entity) in order to confirm that the respective non-resident is the resident of a country with which Ukraine has an effective double-tax treaty. Otherwise, the Ukrainian (taxpayer) entity must withhold the tax (see Appendix 1).

Appendix 1: Treaty Withholding Tax Rates

Ukraine honors the double-tax treaties of the former USSR, except for treaties that have been superseded by new treaties concluded directly by Ukraine or renounced by the other party to the treaty. Ukraine is not a member of the Organization for Economic Cooperation and Development (OECD). As a result, the Ukrainian tax authorities may not follow commentary in the OECD model convention. The rates in the following table reflect the lower of the treaty rate and the rate under domestic tax law for dividends, interest and royalties paid from Ukraine to residents of treaty countries. Exceptions or conditions may apply, depending on the terms of the particular treaty.

Ukraine has also ratified double-tax treaties with Brazil, Mongolia, Kuwait, South Africa, and Cuba. Ukraine has signed double-tax treaties with Israel, Slovenia and Luxembourg, but these treaties have not been ratified yet. Ukraine has negotiated double-tax treaties with Malta and Pakistan, but these treaties have not yet been signed. Ukraine is negotiating double-tax treaties with Guinea and Tunisia.

Footnotes

(a) The 0-percent rate applies to dividends paid to companies that directly hold at least 50 percent of the capital of the payer and have invested at least FF 5 million in the capital of the payer. The 5-percent rate applies to dividends paid to companies that own at least 20 percent of the capital of the payer. The 15-percent rate applies to other dividends.

(b) The 0-percent rate applies to royalties for copyrights of works of art. The higher rate applies to other royalties.

(c) The 15-percent rate applies to royalties for copyrights including film and radio broadcasting. The 10-percent rate applies to other royalties.

(d) The lower rate applies to dividends paid to companies owning a minimum percentage of the capital of the payer (under the treaties, this percentage ranges from 10 percent to 50 percent). The higher rate applies to other dividends.

(e) The 0-percent rate applies to interest paid to government institutions of the contracting states. The higher rate applies to other interest.

(f) The 0-percent rate applies to payments for the use of, or the right to use, computer software. The 10-percent rate applies to other royalties.

(g) The 0-percent rate applies to payments for the use of, or right to use, secret formulas or processes, or for information (know-how) concerning industrial, commercial or scientific experience. The 10-percent rate applies to other royalties.

(h) The 2-percent rate applies to interest on loans from banks or financial institutions as well as to interest in connection with sales on credit of merchandise or services between enterprises or sales of industrial, commercial or scientific equipment. The 5-percent rate applies to other interest.

(i) The 0-percent rate applies to dividends paid to companies (other than partnerships) that directly hold at least 50 percent of the capital of the payer of the dividends and have made an investment in the capital of the payer of at least USD 300,000 or the equivalent in the currencies of the contracting states. The 5-percent rate applies to dividends paid to companies owning at least 20 percent of the payer. The 15-percent rate applies to other dividends.

(j) The 2-percent rate applies to interest on loans from banks and financial institutions as well as to interest in connection with sales on credit of machinery and equipment. The 10-percent rate applies to other interest.

(k) The 0-percent rate applies to payments for the use of, or the right to use, copyrights of scientific work, patents, trademarks, designs or models, plans, and secret formulas or processes, as well as to information concerning industrial, commercial or scientific experience. The higher rate applies to other royalties.

(l) The 5-percent rate applies to royalties paid for the use of, or right to use, patents, plans, or secret formulas or processes, as well as to information (know-how) concerning industrial, commercial or scientific experience. The 10-percent rate applies to other royalties.

(m) The 0-percent rate applies to dividends paid to companies that hold directly at least 50 percent of the capital of the payer and have made an investment of at least USD 1 million in the capital of the payer. The 5-percent rate applies to dividends paid to companies owning at least 20 percent of the capital of the payer. The 15-percent rate applies to other dividends.

(n) The 5-percent rate applies to interest related to commercial credit. The 10-percent rate applies to other interest.

(o) The 5-percent rate applies to dividends paid to companies that have invested at least USD 50,000 in the capital of the payer. The 15-percent rate applies to other dividends.

(p) The 0-percent rate applies to the following: interest paid to government institutions; interest on loans from banks; and interest in connection with sales on credit of machinery and equipment. The 10-percent rate applies to other interest.

(q) The 10-percent rate applies to dividends payable to the beneficial owner that, for an uninterrupted period of two years prior to the payment of the dividend, owns directly at least 25 percent of the capital stock of the company paying the dividends. The higher rate applies to other interest.

(r) The 0-percent rate applies to payments for the use of, or the right to use, copyrights of scientific work, patents, trademarks, designs or models, plans, and secret formulas or processes, as well as to information concerning industrial, commercial or scientific experience starting the second year of ownership of said objects. The 5 percent rate applies to payments for the use, or the right to use of the above objects if preformed during the first year of ownership. The 10-percent rate applies to other royalties.

(s) The 10-percent rate applies to royalties for the use of or the right to use any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. The 15 percent rate applies to other royalties.

(t) The 0-percent rate applies to the dividend, if the beneficial owner is a company (other than a partnership) which holds directly at least 25 percent of the voting power of the company paying the dividends and at least 50 percent of the voting power of the company, which is the beneficial owner of the dividends, is held by residents of that contracting state.

(u) The 0-percent rate applies to the interest paid on the loan guaranteed or insured by, the Government or otherwise with respect to indebtedness arising on the sale on credit, by that enterprise, of any merchandise or industrial, commercial or scientific equipment to an enterprise of the first-mentioned state, except where the sale or indebtedness is between related persons.

(v) The 0-percent rate applies to royalties which are paid with respect to any patent concerning industrial and manufacturing know-how or process as well as agriculture, pharmaceutical, computers, software and building constructions, secret formula or process, or for information concerning industrial, commercial or scientific experience.

Prepared in accordance with the materials of "Ernst & Young" LLC