Taxes for German Companies in Ukraine
German companies operating in Ukraine through a subsidiary or permanent establishment are generally subject to 18% corporate income tax and 20% VAT. Dividends, interest and royalties paid to Germany may benefit from the reduced rates under the applicable 1995 treaty if the recipient qualifies and the documentation is in place before payment. The new treaty signed on 19 May 2026 is not yet in force.
The article is relevant to German companies preparing to enter Ukraine, businesses already operating a Ukrainian subsidiary, and groups transacting with Ukrainian counterparties. It is also designed for CFOs, tax managers, accountants and legal counsel assessing the form of presence, withholding tax, VAT, transfer pricing and payroll costs.
1. Key taxes in Ukraine
2. Forms of presence in Ukraine
3. Corporate income tax and permanent-establishment risk
4. Withholding tax on payments to Germany
5. The applicable 1995 treaty
6. The new 2026 treaty
7. Documents for treaty relief
8. VAT for German companies
9. Transfer pricing
10. Payroll taxes and social security
11. Common tax mistakes
12. Practical checklist
Frequently asked questions
How DLF can help
1. Key taxes in Ukraine
The following taxes are most relevant to German investors and Ukrainian companies with German ownership:
| Tax | Main rate | Payer or withholding party |
|---|---|---|
| Corporate income tax | 18% | Ukrainian company or permanent establishment |
| Non-resident withholding tax | 15% under the general domestic rule | Ukrainian payer acting as tax agent |
| Value-added tax | 20% | VAT-registered taxpayer |
| Unified Social Contribution | 22% | Employer, on top of gross salary |
| Personal income tax | 18% | Withheld from employee remuneration |
The calculation rules and exceptions are set out in the Ukrainian Tax Code. In 2026, most employment income is also subject to a 5% military levy. It should not be assumed that this levy will automatically end together with martial law; its future application depends on the transitional rules in force.
2. Forms of presence in Ukraine
The choice of presence affects tax registration, liability and profit repatriation.
A limited liability company is the most common vehicle for full operating activity. It is a separate legal entity, pays corporate income tax, registers for VAT where required and performs the obligations of an employer.
A representative office or other separate unit is not a separate legal entity. Where its functions are genuinely preparatory or auxiliary, the risk of a permanent establishment may be reduced. Contract negotiations, sales, coordination of core operations or other commercial functions require a separate tax assessment.
A permanent establishment may arise through a fixed place of business, a dependent agent or another factual presence. The absence of a formally registered branch or Ukrainian company does not eliminate this risk.
3. Corporate income tax and permanent-establishment risk
The standard corporate income tax rate is 18% of taxable profit. For a Ukrainian company, the tax base follows accounting profit, subject to adjustments under tax law. A permanent establishment is taxed on the profit attributable to its Ukrainian activities.
A place of management, branch, office, warehouse or server may constitute a permanent establishment where business is actually carried on through it. The mere presence of equipment or an employee is not necessarily decisive. Control over the location, staff functions, authority to conclude contracts and the duration of activity must be analysed together.
Under the applicable Ukraine-Germany treaty, a building site, construction project or installation project constitutes a permanent establishment only if it lasts more than 12 months. Preparatory or auxiliary activities may remain outside the permanent-establishment definition if they do not form part of the enterprise's core business.
4. Withholding tax on payments to Germany
When income is paid to a German company, the Ukrainian payer acts as tax agent. Dividends, interest, royalties and many other categories of Ukraine-source income are generally subject to a 15% domestic withholding rate unless a special rule or international treaty provides otherwise.
Treaty relief is not automatic. Before payment, the income type, treaty status, recipient's qualification and supporting documents should be reviewed. For dividends, interest and royalties, particular attention is paid to whether the German company is the beneficial owner rather than an agent or conduit.
5. The applicable 1995 treaty
Until the new treaty enters into force, the 1995 Ukraine-Germany treaty applies.
Dividends. The rate is 5% where the German company directly holds at least 20% of the Ukrainian company's capital. In all other cases, the rate is 10%.
Interest. A 2% rate applies, among other cases, to interest on credit sales of industrial, commercial or scientific equipment, credit sales of goods or services between enterprises, and loans granted by banks or other financial institutions. Other interest is generally subject to a 5% rate. Certain government or guaranteed financing is exempt.
Royalties. A 5% rate applies to remuneration for the use of copyright in literary and artistic works, including films. Royalties for scientific works, patents, trademarks, designs, plans, secret formulae, processes and know-how are taxable only in the beneficial owner's state of residence under the treaty and may therefore be exempt from Ukrainian source taxation.
The reduced rates require the recipient to be the beneficial owner of the relevant income. Structures lacking sufficient commercial purpose should also be reviewed under the applicable anti-abuse rules, including the principal purpose test.
6. The new 2026 treaty
Ukraine and Germany signed a new treaty on 19 May 2026. The Ukrainian Ministry of Finance published the principal changes, while the German Federal Ministry of Finance confirms that ratification by both states is still required.
The new treaty provides for the following changes, which are not yet applicable:
- Dividends: 5% where a company directly holds at least 20% of the capital for a 365-day period, and 15% in all other cases.
- Interest: a general 5% rate; the current 2% rate for credit sales and loans from banks or financial institutions increases to 5%.
- Royalties: a general 5% rate; the current exemption for certain types of rights is removed.
- Administration: broader information exchange, anti-abuse rules and dispute-resolution mechanisms.
The treaty will apply from 1 January of the calendar year following the year in which it enters into force. No official ratification timetable had been announced when this article was prepared. Any ownership restructuring intended to preserve the 5% dividend rate should have an independent commercial rationale and account for the 365-day holding period.
7. Documents for treaty relief
A Ukrainian payer may apply the treaty rate at source without prior tax-authority approval if the conditions are met on the payment date.
The primary document is a tax residence certificate issued by the competent German authority. The certificate, or a notarised copy, must be properly prepared for use in Ukraine and translated into Ukrainian in accordance with Ukrainian law. The authentication method for a German document should be checked before the first payment because it depends on the applicable legalisation regime.
A certificate covering the preceding tax year may be used for payments in the current year, provided a certificate for the relevant current period is obtained after year-end. If no certificate is available at payment, the domestic rate applies. A refund of excess withholding is legally possible but requires a separate procedure.
The beneficial owner must have the economic right to use and enjoy the income and must not be contractually required to pass it on automatically. Holding, finance and licensing structures should therefore maintain contemporaneous documentation of the recipient's functions, risks, assets and commercial purpose.
8. VAT for German companies
The standard VAT rate is 20%. A Ukrainian subsidiary is subject to the general registration, filing and payment rules.
A simplified regime applies to B2C electronic services supplied directly by a German company to Ukrainian consumers. If the total value of those services in the preceding calendar year exceeds UAH 1,000,000 (approximately USD 22,000), the non-resident must register for VAT in Ukraine. Returns are filed quarterly within 40 calendar days after the end of the quarter.
The VAT treatment of B2B services depends on the type and place of supply. Consulting, software, advertising, engineering and other services may follow different rules, so the transaction should be reviewed before the first invoice is issued.
9. Transfer pricing
Transactions between a German parent and its Ukrainian subsidiary may be controlled transactions. The general thresholds are annual taxpayer revenue exceeding UAH 150 million (approximately USD 3.3 million) and transactions with one counterparty exceeding UAH 10 million (approximately USD 223,000) in the relevant year, excluding indirect taxes. These thresholds are confirmed in official State Tax Service guidance.
Meeting the thresholds is not the only test: the counterparty category and transaction type must also be reviewed. Controlled transactions must be documented on an arm's-length basis. Missing documentation or a mismatch between contractual terms and actual functions creates adjustment and penalty risks.
10. Payroll taxes and social security
The employer pays the Unified Social Contribution at 22% of gross salary under the Unified Social Contribution Law. This is an additional employer cost rather than an employee deduction.
Personal income tax at 18% and a military levy at 5% are withheld from gross remuneration. Different rules may apply to specific individuals and payment categories.
For each UAH 100 (approximately USD 2) of gross salary, the employer generally incurs UAH 122 (approximately USD 3) before other benefits and payments. Personal income tax and the military levy reduce the employee's net pay.
11. Common tax mistakes
- Permanent-establishment risk is not assessed. Staff, premises, a warehouse, a server or a dependent agent may create a taxable presence without formal registration.
- The residence certificate is obtained after payment. The Ukrainian payer must then use the domestic rate.
- The new treaty rates are applied prematurely. The 2026 treaty is not yet current law.
- Interest or royalties are classified incorrectly. The applicable treaty distinguishes between payment categories.
- Transfer-pricing documentation is missing. A contract without functional and economic support does not remove the risk.
- B2C electronic services are supplied without VAT registration. The previous calendar year's threshold must be monitored.
12. Practical checklist
- Form of presence reviewed for permanent-establishment risk
- Each cross-border payment correctly classified
- Current treaty rates separated from the future new-treaty rules
- Residence certificate and Ukrainian translation prepared before payment
- Beneficial-owner status supported in substance and documentation
- VAT registration obligation for B2C services assessed
- Controlled transactions and transfer-pricing documentation reviewed
- Payroll tax and social-security processes implemented
Frequently asked questions
Which tax treaty currently applies between Germany and Ukraine?
The 1995 treaty applies. The treaty signed on 19 May 2026 has not entered into force and cannot be used to calculate tax. It will replace the current treaty only after ratification and entry into force.
What withholding rate applies to dividends paid to Germany?
Under the current treaty, the rate is 5% where the German company directly holds at least 20% of the Ukrainian company's capital and 10% in other cases. Without treaty entitlement, the domestic 15% rate applies.
What will the new 2026 treaty change?
Once in force, the rate for other, including minority, dividends will be 15%, while the 5% rate will require at least 20% direct ownership for 365 days. Interest will generally be subject to a rate of up to 5%, and the current exemption for certain scientific and industrial royalties will be removed.
Can a German company owe Ukrainian tax without a registered Ukrainian company?
Yes. Tax obligations may arise if its activities create a permanent establishment through a fixed place of business, personnel with relevant authority, a dependent agent or a long-running construction or installation project.
How are electronic services supplied to Ukrainian consumers taxed?
If the value of B2C electronic services in the preceding calendar year exceeds UAH 1,000,000 (approximately USD 22,000), the German company registers for Ukrainian VAT under the simplified procedure. The rate is 20% and returns are filed quarterly.
What payroll costs does an employer bear in Ukraine?
The employer pays a 22% Unified Social Contribution on top of gross salary. Personal income tax at 18% and the 5% military levy are withheld from the employee. Employer cost is therefore generally UAH 122 (approximately USD 3) per UAH 100 (approximately USD 2) of gross salary, excluding other payments.
How DLF can help
DLF attorneys-at-law supports German companies and investors throughout their activities in Ukraine. The work includes selecting a corporate structure, registering a subsidiary or separate unit, analysing permanent-establishment exposure, applying the double taxation treaty, VAT registration, transfer pricing, tax planning and support during tax audits. Relevant DLF practice areas are tax law and corporate law / M&A.
Iurii Dynys, Counsel, Attorney-at-law – DLF attorneys-at-law
Contacts: +380 44 384 24 54, info@dlf.ua.
This material is intended for general information. The application of the approaches described depends on the circumstances of the specific situation and requires a separate legal assessment.