Bundestag Approves New Tax Treaty with Ukraine
According to the agenda of the Deutscher Bundestag (German Bundestag, Federal Parliament), the second reading and final vote on the Act ratifying the double taxation agreement concluded between Germany and Ukraine on 19 May 2026 were scheduled for 5 November 2026; the Bundestag approved the Act (BT-Drs. 21/8245 and BT-Drs. 21/8665, Bundestag printed papers). The agreement concerns taxes on income and is also intended to prevent tax underpayment and tax avoidance.
On 16 October 2026, the Bundesrat (Federal Council) had already resolved not to raise any objections to the bill pursuant to Art. 76(2) GG (Grundgesetz, German Basic Law). According to the Bundesregierung (German Federal Government), provision was made in the 2026 federal budget for the costs associated with the agreement.
Replacement of the 1995 Agreement
The new treaty is intended to replace the double taxation agreement signed in Bonn on 3 July 1995. In addition to taxes on income, the existing agreement also covers taxes on capital. By contrast, the substantive scope of the new agreement is limited to the taxation of income.
The revised agreement is intended to further reduce tax-related barriers in German-Ukrainian economic relations. At the same time, key provisions are based on the wording and principles of the 2017 OECD Model Tax Convention.
The 1995 agreement will continue to apply to matters arising before the new agreement enters into force. The transition between the two regulatory frameworks therefore does not depend solely on the completion of the domestic procedures.
Key Changes to the Taxation Rules
Residence, Permanent Establishments and Business Profits
The new rules address the entitlement of hybrid entities and other arrangements to treaty benefits. They also contain provisions governing the residence status of companies deemed resident under the domestic law of both contracting states.
The requirements for establishing a permanent establishment are adjusted in certain respects. For the attribution of profits to permanent establishments, the agreement takes account of the Authorised OECD Approach.
Dividends, Interest and Royalties
Several withholding tax rates will change compared with the existing agreement:
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For dividends from shareholdings below the relevant participation threshold, the withholding tax rate will increase from 10% to 15%.
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For a participation of at least 20%, the withholding tax rate on dividends will remain at 5%.
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The withholding tax rate on interest will increase from 2% to 5%. This applies in particular to interest from bank loans and credit sales.
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The partial exemption previously available for royalties will be abolished. In the future, a uniform withholding tax rate of 5% will apply.
The report of the Finanzausschuss (Finance Committee) emphasises in particular that Ukraine will in future be permitted to withhold tax of 15% rather than 10% on dividends paid to small investors.
Capital Gains, Pensions and Public-Sector Remuneration
The agreement also reallocates taxing rights in respect of capital gains. Pensions paid under statutory social security schemes will in future be taxable exclusively in the respective source state.
In addition, the Deutscher Akademischer Austauschdienst (German Academic Exchange Service) will be included within the principles governing taxation by the paying state. These rules determine which state has the right to tax certain remuneration paid from public funds.
Cooperation Between the Tax Authorities
Expanded Exchange of Information
The agreement aligns the exchange of information for tax purposes with the OECD standard. This is intended to expand cooperation between the German and Ukrainian tax authorities. The associated data protection clause will also be updated.
In addition, the treaty generally provides for mutual administrative assistance in the collection of taxes. This includes the enforcement of tax claims, provided that the requirements of the agreement are met.
Protection Against Abuse of Treaty Benefits
Further provisions are intended to prevent treaty benefits from being claimed improperly. The agreement thus combines the elimination of cross-border double taxation with measures against tax underpayment and tax avoidance.
It also establishes a basis for international arbitration proceedings. These proceedings may become relevant within the mutual agreement procedure under the treaty if the competent authorities of both states are unable to resolve a dispute by mutual agreement.
Entry into Force Is Subject to Ratification
Exchange of Instruments of Ratification
Under Art. 29(1) of the agreement, the treaty must be ratified. This requires completion of the respective domestic procedures in Germany and Ukraine. The instruments of ratification will then be exchanged as soon as possible.
The agreement will enter into force on the date of this exchange. There is currently no confirmed date for completion of the Ukrainian ratification procedure and the exchange of instruments.
Commencement of Application for Tax Purposes
For taxes levied by way of withholding, the agreement will apply to amounts paid on or after 1 January of the calendar year following the year in which it enters into force. Its initial application in practice will therefore depend on the date on which the instruments of ratification are exchanged.
For companies, investors and private individuals with tax connections to Germany and Ukraine, the amended withholding tax rates, permanent establishment rules and transitional arrangements for the new treaty may be particularly relevant. MTR Legal advises on cross-border matters as part of its tax law advisory services.
