Permanent Establishments in Ukraine: Underestimated Tax Risk

Recently, as tax lawyers, we have increasingly encountered a typical scenario. Companies considering entering the Ukrainian market or structuring their operations in Ukraine tend to focus on commercial, operational, and currency control aspects, while overlooking the risk of creating a permanent establishment (PE).

At first glance, the absence of formal registration or legal presence shields the non-resident from tax obligations. However, in practice, the opposite is often true. A PE may arise de facto — solely based on the nature of the non-resident’s activity in Ukraine. This may include long-term presence of personnel, regular service provision, participation in negotiations, storage of goods, installation works, and more.

If this risk materialises, it may lead to the following:

a portion of the non-resident’s profit that is currently taxed in its country of registration may become subject to taxation in Ukraine

the Ukrainian tax authorities may impose additional tax liabilities, penalties, and interest, and in more complex cases — even initiate criminal proceedings

reputational consequences may be no less significant, particularly for international groups reporting globally

lack of proactive tax review may jeopardise the entire operating model in Ukraine — including eligibility for VAT registration or cost deductibility

Given the growing attention of the Ukrainian tax authorities to international structures and non-resident business activities, it is advisable to assess in advance whether the actual operations in Ukraine could trigger PE status and, if needed, adjust the business model or obtain an individual tax ruling.

We would be happy to advise on assessing the risk of PE creation in Ukraine and help you align your business model with local tax requirements.

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