Affiliate is a separate subdivision of a legal entity operating outside of such legal entity’s location and performing all its functions or a part of them, in particular, representation function.
According to the Letter of the Ministry of Justice of Ukraine dated 25.06.2002, N 21-44-819, an established affiliate is not a legal entity itself. Such subdivision may manage the property that has been assigned for its needs from the main enterprise and operates on the ground of statutory and other documents of such company. The head of the established affiliate who is appointed by the enterprise — legal entity, performs his duties on the ground of respective authorization.
Here is the list of documents to be submitted by the customer to establish an affiliate:
– Articles of Association of the legal entity (its copy certified by the Seal);
– Certificate of State registration of the legal entity or Abstract from the Single state register (copy certified by the Seal);
– Certificate from the Single state registrar of enterprises and organizations of Ukraine about registration of the legal entity (copy certified by the Seal);
– Passport and Tax ID of the head of an affiliate (copy);
– Power of Attorney for representatives (we can prepare it the customer would like us to do so).
To establish an affiliate the following information is required:
– where will such affiliate be located (its legal address);
– in what areas of activity will it be operating;
– about the type and taxation system of such affiliate;
– who will be its head;
– in what banking institution will the account be opened.
Steps for establishing an affiliate:
1. preparation of statutory documents (minutes on establishment, Regulations on the affiliate, registration card no. 5);
2. registration at the executive committee of the city council;
3. registration at the department of Statistic service;
4. registration at the local subdivision of the Pension Fund of Ukraine;
5. entry for records at the tax inspection;
6. fabrication of a round seal;
7. opening of an affiliate’s account at bank.
The period required for establishing an affiliate is: 7 business days.
Upon completion of establishment of an affiliate a customer would receive:
– round seal and
– a folder containing registration documents including:
1. Minutes on establishment of an affiliate;
2. Abstract from the Single state register;
3. Regulations with a note on the state registration;
4. certificate from the Statistics department;
5. notice of registration at the local subdivision of the Pension Fund of Ukraine;
6. certificate from the Tax authority about starting records on the tax-payer (form 4-ОPP).
Tax payments by the new affiliate.
If the new affiliate is located within the same territorial community that the legal entity (main company), such new affiliate shall not be considered an independent tax-payer. In such case the main company and its new affiliate shall be considered as a single tax-payer, respectively the main company pays tax calculated on the total result of business activity of the company itself and its new affiliates.
If the new affiliates are located on the territory of another territorial community than the main company, such new affiliates may be considered independent payers of profit tax. In such case according to the Tax Code of Ukraine (hereinafter – TCU), payment of tax is possible in two ways:
1) tax payments from the affiliate and the main company separately;
2) the main company together with its affiliates choose to be transferred to payment of consolidated tax.
If the main company and its new affiliates pay profit tax independently, they shall be considered as independent tax-payers (according to par. 133.1.5 and 133.1 of the art. 133 of the TCU). In this case all provisions of the Chapter III Profit Tax of the TCU will be applied to the new affiliate as to the independent tax-payer (keeping books for receipts and expenditures, accounting depreciation costs, keeping books for growth of inventory items, making a declaration on profits etc.).
If the legal entity decides to choose a consolidated tax-payment, such payment order shall be used by all its affiliates together with the main company of this legal entity, not just some of them. The essence of the consolidated payment is that the main company pays profit tax to the budget of the territorial community of its own location and to the budgets of the territorial communities of its affiliates’ locations as well. So, in this case tax payments are carried out directly by the main company for itself and for its affiliates.
It is up to the company to decide in what way the new affiliate shall pay profit tax. But if the company wishes to pay profit tax in consolidated order, the company shall choose such payment order till July 1 of the year preceding the year when it starts tax payments in such new order. Before this deadline the company shall inform about its decision to do so tax authorities at the location of its main company as well as at the locations of all its independent subdivisions. If the main company hasn’t taken such decision or has taken it with delay, its new affiliates should continue paying tax in common order.
In case when a tax-payer opens affiliates within the reported year, the state tax authority at the location of such new affiliate and of tax-payer shall be informed. Then, the results of the economic activity of all affiliates are considered upon calculation of the consolidated balance starting from that reported (tax) period when they have been established.
As soon as the company starts paying the consolidated profit tax, it has no more right to change the order and form of such payments till the end of the reported year.