Ukraine's proposal to increase tax for companies operating in Russia – outline


The Ukrainian Parliament is considering the Bill No. 7232 which introduces increased tax rates for companies that "have economic ties with the aggressor state" (the "Bill"). The Bill primarily targets multinational corporations presented in Ukraine which hesitate to leave Russia and continue operations on the Russian market or with Russian companies.

The Bill has passed the first reading and has recently been updated for the second reading. We understand that the Ukrainian lawmakers are now discussing with their international partners the possibility of adopting similar legislation by other countries. That would make the measure international rather than purely domestic. It is our expectation that the Bill will not be finally adopted unless these discussions are finalized.

The main proposal of the Bill is to increase by 50% the rates of certain taxes for companies that have economic ties with Russia. That would raise the current corporate income tax ("CIT") rate from 18% to 27%. Other taxes concerned include property tax, environmental tax and resource taxes. Non-resident withholding tax as well as indirect taxes (such as VAT and excise tax) are not affected by the Bill.


The scope of the Bill is enormously broad and effectively covers all entities which maintain shareholding relations with Russian entities or carry out any types of operations in Russia either directly by Ukrainian company or by its foreign sister or parent company.

The technical definition of a company that have economic ties with Russia includes the following:

(a) a Ukrainian company whose ultimate beneficial owner ("UBO") or direct or indirect shareholder or, in case of a Ukrainian joint-stock company, a 5% direct or indirect shareholder is Russia or any Russian resident (individual or company), including when the shareholder or UBO of such Ukrainian company is Russia or a Russian company meeting any of the following criteria:

  • its shareholder (a 5% shareholder in case of a joint-stock company) is Russia or any Russian resident (individual or company); or
  • its UBO is Russia or any Russian resident (individual or company);

(b) a Ukrainian company which:

  • receives income in any form from Russia, carries out operational, financial, or investment activities which result or may in the future result in income from Russia; and/or
  • directly or indirectly holds an interest in a company (either Ukrainian or foreign) or in a foreign organization, which receives income in any form from Russia, carries out operational, financial, or investment activities which result or may in the future result in income from Russia; and/or
  • is a part of a joint venture ("JV") which also includes a Russian resident (individual or company) as its member, provided that such JV has any of the following features:
    • it is aimed at profit-making or distribution of expenses;
    • it has joint ownership;
    • it is under joint control or management;
    • it shares common quality control policies and procedures;
    • it shares common business strategy;
    • it provides services under the same trademark; or
    • it has common professional resources;


  • has financial claims or liabilities toward Russian residents; and/or
  • provides economic support to Russia (i.e., free of charge provision of goods, works, services for consumption or storage in Russia, or to satisfy any needs of Russia or its residents; free of charge transfer of IP rights and other intangible assets to Russian residents or residents of any other states for their use in Russia or to satisfy any needs of Russia or its residents);

(с) a Ukrainian member company of a multinational enterprise ("MNE"), if:

  • a parent or any other member company of that MNE receives income in any form from Russia, carries out operational, financial, or investment activities which result or may in the future result in income from Russia; or
  • a parent or any other member company of that MNE has financial claims liabilities toward Russian residents; or
  • a parent company or any other member of such international group of companies provides economic support to Russia.

The criteria (b) and (c) also apply to Ukrainian permanent establishments of foreign residents.


A company which, as of the entry into force of the Bill, falls under the above definition, will be required to notify the tax authorities respectively within 60 days. The increased CIT rate shall apply retroactively from 01 January 2022. A company concerned will be required to adjust its prior tax filings made in 2022 (no penalties shall apply).


There are two cases where a company is exempt from an obligation to apply increased tax rates:

  • the company's activity in Ukraine is considered to have significant social, humanitarian or economic impact. The criteria of "significant social, humanitarian or economic impact" are to be developed by the Cabinet of Ministers of Ukraine. If a company believes it meets such criteria, it will have to state this in the notification sent to the tax authorities;
  • the company has information regarding the legal steps supposed to result in the loss of the status of a "company that has economic ties with Russia" (for instance, if an MNE to which the company belongs publicly announces its full suspension of any Russian operations). However, if the company does not lose the status before 1 April 2023 (a one-time extension can be granted until 1 January 2024), the exemption is lost and the company will have to retroactively apply the increased tax rates.

An exemption is granted automatically (i.e. no preliminary approval by tax authorities will be required); however, the tax authorities may inspect the validity of the exemption


Breach of statutory requirements related to the notification on economic ties with Russia, using an increased rate exemption on invalid grounds are penalized with a fine of 1.5% of the total company's income for each reporting period when the increased tax rates should have been applied.


This outline is focused on the increased tax rates, whereas the Bill suggests other adverse measures against companies which keep business with Russia (both in tax and non-tax sphere). For example, the companies that have economic ties with Russia will not be able to use certain tax incentives usually available to other taxpayers. In the non-tax sphere, it is worth mentioning that such companies will be required to mark their advertising and sponsor materials with a warning that they have economic ties with Russia. The exemptions mentioned earlier can only discharge a company from the obligation to apply the increased tax rates, but they are not supposed to prevent application of the other adverse measures.


Should you need more information on the document and/or analysis of its potential implications on your business, our tax team would be happy to assist you. In this case, please feel free to contact our Tax Partner Constantin Solyar, Senior Associate Yurii Dmytrenko and Associate Olena Mitskan

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