The rules governing taxation of dividends received by a CFC from Ukrainian legal entities at the level of a controlling person (“look-through dividends”) have been amended

On 5 July 2025, the Law of Ukraine No. 4505-IX (the “Law”) entered into force. The Law, inter alia, amends the rules for taxation of “look-through dividends” (i.e., dividends received by a controlled foreign company (the “CFC”) from Ukrainian legal entities, either directly or indirectly through a chain of controlled legal entities).

Key changes

The legislator made an attempt to clarify the provisions of sub-paragraph 170.13.3 and paragraph 170.13¹ of the Tax Code of Ukraine (the “TCU”) with respect to the taxation of dividends received by a CFC from Ukrainian legal entities at the level of a controlling person.

Considering the amendments introduced to the TCU by the Law, the following rules currently apply:

• Sub-paragraph 170.13.3 of the TCU

Same as before, the amount of profit of a CFC received in the form of dividends from Ukrainian legal entities is deemed to be the amount of dividends directly received by the controlling person of the CFC. Such amount is included in the total taxable income of the controlling person for the reporting period during which the CFC received the dividends and is subject to personal income tax (“PIT”) at the rate of 5% or 9% (depending on whether the Ukrainian company is a corporate income taxpayer in Ukraine), and military levy at the rate of 5%. These provisions of sub-paragraph 170.13.3 of the TCU remain unchanged.

At the same time, in addition to the existing provisions stating that the above-mentioned dividends are not included in the calculation of the CFC’s adjusted profit and are not taxed upon their actual distribution to the controlling person, the Law has further established that such dividends are not subject to taxation by the taxpayer in accordance with sub-paragraph 170.13.1 of the TCU (i.e., as part of the CFC’s adjusted profit).

• Paragraph 170.13¹ of the TCU

According to the revised wording of paragraph 170.13¹ of the TCU, dividends which are deemed to be received by the taxpayer under the above rules of sub-paragraph 170.13.3 of the TCU are not included in the taxpayer’s total monthly (annual) taxable income, provided that such dividends have already been taxed at the level of the Ukrainian legal entity in accordance with the procedure set out in sub-paragraph 141.4.2 of the TCU (likely, the withholding tax on income paid to non-residents?).

In view of the above changes, one may assume that the legislator intended (1) to shift the obligation to tax “look-through dividends” to the level of the Ukrainian legal entity distributing such dividends, and (2) to confirm that such dividends should no longer be subject to taxation at the level of the controlling person. Together, these assumptions may point to the legislator’s intention to revise the approach to taxation of “look-through dividends” at the level of individual controllers by exempting such dividends from PIT (and, potentially, military levy, depending on how the adopted amendments are interpreted), provided that such dividends have already been subject to withholding tax by the Ukrainian legal entity in accordance with sub-paragraph 141.4.2 of the TCU.

At the same time, it should be noted that the adopted amendments, in their current wording, allow for multiple interpretations, as the Law did not repeal the general rule deeming dividends received by a CFC from Ukrainian legal entities to be directly received by the individual controller (i.e., the first paragraph of sub-paragraph 170.13.3, as outlined above). Similarly, the provisions requiring such income to be included in the total taxable income of the controller and taxed at the applicable PIT rates (5%/9%) and military levy rate (5%) have also not been repealed. Given this, it remains unclear whether payment of withholding tax by the Ukrainian legal entity on the amounts of “look-through dividends” according to sub-paragraph 141.4.2 of the TCU is sufficient for exemption of such dividends from PIT and military levy. In addition, the amendments may give rise to questions regarding tax reporting obligations in respect of dividends at the level of the Ukrainian legal entity.

A separate clarification is also required as to whether the above rules apply to Diia.City residents that are corporate income taxpayers under a special regime (we believe that these rules should apply to Diia.City residents as well; however, it would be advisable for companies to obtain clarification from the tax authorities confirming this position).

Given the above uncertainties in interpreting the amendments introduced by the Law, we recommend monitoring clarifications issued by the tax authorities regarding the practical application of the respective provisions, as well as consider filing a request for an individual tax ruling to the tax authorities. If needed, we would be pleased to assist with the preparation and filing of such a request.

Effective date of the adopted amendments

Although the Law entered into force on 5 July 2025, the amendments related to taxation of “look-through dividends” apply retroactively to tax (reporting) periods starting from 1 January 2024, pursuant to paragraph 36 of Subsection 1, Section XX “Transitional Provisions” of the TCU.

If a CFC controller has already submitted an annual tax return for 2024 and declared/taxed the amount of “look-through dividends” in accordance with the rules effective prior to the adoption of the Law, such controller is entitled to file an amended tax return and adjust (reduce) the total amount of annual income by the respective amount of dividends.

At the same time, any PIT and military levy amounts already paid by the CFC controller in respect of the declared “look-through dividends” may be taken into account only against future tax liabilities in tax periods following the period in which martial law is lifted or cancelled.