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As a general rule, it is international practice for banks and other financial institutions to charge fees for processing loan applications, and for opening and servicing credit lines. Cases tried before the commercial courts of Ukraine demonstrate that taxpayers and the tax authorities have a different understanding of these operations from the point of view of the Law of Ukraine "On Value Added Tax" (hereinafter, the "VAT Law").In one such case, a company resident in Ukraine and a non-resident financial institution concluded a loan agreement. The loan agreement provided for payment of interest and loan fees, which is set as a percentage of the loan principal. Loan fees were consideration for the processing of the loan application and opening a line of credit.

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In practice, taxpayers often face the problem when tax payment and tax administration issues are treated differently by different laws. When this happens, it is unclear which provision of the law should be applied in each particular situation. Thus, the Law of Ukraine "On the settlement of taxpayers' obligations with the budget and state funds" (hereinafter - the Law "On tax settlement") and the Law of Ukraine "On land payments" provide for different periods for filing applications with the tax authorities for refunds of overpaid taxes - three and two years, respectively.

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Tax credit and VAT recovery are traditionally amongst the most complicated and controversial issues relating to Ukrainian businesses, both in terms of law and practice. The involvement and abuse of administrative resources are rather common in this sector. At the same time, a reliable and smooth procedure of applying for VAT credit is an essential component of operations for companies whose ordinary business operations are subject to VAT. The Ukrainian legislation7 defines tax credit as the amount by which the taxpayer is entitled to decrease its tax liability for the reporting period.

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Non-residents shall be understood as legal entities and subjects of business activities not having legal entity status (affiliates, representative offices, etc.) located outside of Ukraine, created and engaged in their activities in compli-ance with the legislation of another country.

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We have recently advised to a French company involved in IT technology on two topics concerning peculiarities of running its 100 per cent owned Ukrainian company. As the issues raised are of interest to numerous investors in Ukrainian business, it is our pleasure to publish our Explanations on Registration of a Ukrainian business entity as a payer of the Value Added Tax and Variants of employee remuneration

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