LETTER OF STATE TAX ADMINISTRATION OF UKRAINE

of July 18, 2011 No. 12884/6/15-0516

The State Tax Administration of Ukraine considered the letter concerning procedure for the taxation of income gained by nonresidents with source of their origin from Ukraine in the form of insurance payments (insurance premiums, insurance premiums) on risks reinsurance in Ukraine within the agreements of reinsurance signed between resident insurers and non-resident reinsurers with mediation of reinsurance brokers which representations of nonresident brokers are in the context of provisions of Art. 160 of the Tax code of Ukraine (further - the Code) and reports the following.

According to item 160.1 of Art. 160 of the Section III of the Code any income received by the nonresident with source of their origin from Ukraine is assessed with tax according to the procedure and at the rates determined by this Article. For the purposes of this Item, in particular, understand as income gained by the nonresident with source of their origin from Ukraine according to subitem "and" this Item fees and awards on insurance or risks reinsurance in Ukraine (including risks insurance of life) or insurance of residents upon risks outside Ukraine.

Item 160.2 of Art. 160 of the Code provides that resident or permanent mission of the nonresident which perform for benefit of the nonresident or person authorized by it (except permanent mission of the nonresident in the territory of Ukraine) any payment from income with source of its origin from Ukraine gained by such nonresident from conducting economic activity (including into accounts of the nonresident which are operated in national currency), except the income specified in Items 160.3 - 160.6 these Articles, shall hold tax on such income specified in Item 160.1 of this Article at the rate in the amount of 15 percent of their amount and at their expense which is paid to the budget during such payment if another is not provided by provisions of international treaties of Ukraine with the countries of the residence of persons for benefit of which payments which became effective are performed.

According to item 160.6 of Art. 160 of the Section III of the Code it is provided that insurers or other residents who make insurance payments (insurance premiums, insurance premiums) and insurance payments (insurance indemnities) within insurance contracts or risks reinsurance including life insurance for benefit of nonresidents, shall tax the amounts which are transferred, thus:

in case of the conclusion of insurance contracts or risk reinsurances it is direct with insurers and non-resident reinsurers which rating of financial reliability (firmness) meets the requirements established by specially authorized body of the executive authority in the field of regulation of the markets of financial services (including through or with mediation of reinsurance brokers which according to the procedure, determined by such authorized body, confirm that reinsurance is performed at the overcautious person whose rating of financial reliability (firmness) meets the requirements established by the specified authorized body), and also in case of the conclusion of agreements of reinsurance on obligatory civil liability insurance of the operator of nuclear installation for harm which can be caused as a result of nuclear incident, - at the rate of 0 percent (the paragraph the fourth item 160.6 of Art. 160 of the Code);

in other cases, than specified in paragraphs the second - the fourth this Item, - at the rate of 12 percent of the amount of such payments on own account at the time of implementation of transfer of such payments.

Proceeding from stated, taxpayers from payments for agreements of risks reinsurance for benefit of nonresidents through insurance brokers (permanent missions of nonresident brokers in Ukraine) are insurers.

As for the taxation of income gained by nonresidents with source of their origin from Ukraine in the form of fees and awards on insurance or risks reinsurance in Ukraine (including risks insurance of life) or insurance of residents upon risks outside Ukraine, it is necessary to consider the taxation of such income in the context of application of international treaties of Ukraine with the countries of the residence of persons which became effective, for benefit of which insurers perform payments as it is provided by provisions of item 160.2 of Art. 160 of the Section III of the Code.

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