Draft law on VAT taxation of services electronically supplied by non-residents to Ukrainian individuals is adopted and being prepared for the signature of the President of Ukraine

On 03 June 2021, the Ukrainian Parliament adopted a draft law “On Amending the Tax Code of Ukraine on the Abolition of Taxation of Income Received by Non-Residents in the Form of Payment for Production and / or Distribution of Advertisements and the Improvement of Value-Added Taxation of Transactions involving the Supply of Electronic Services by Non-Residents to Individuals”, No. 4184 dated 02 October 2020 (hereinafter, the “Draft Law”).

The Draft Law makes amendments to the Tax Code of Ukraine that introduce VAT taxation of services supplied electronically by non-residents to individuals.
The Draft Law is currently being prepared for the signature of the President of Ukraine. The Draft Law will enter into force on the day following the day of its promulgation, except for certain provisions, which will enter into force on 01 January 2022.

The non-residents exceeding the registration threshold for 2021 should register for VAT purposes in Ukraine till 31 March 2022 and pay VAT liabilities for the periods starting from 1 January 2022.

Definition of electronically supplied services

For the purposes of the Draft Law, electronically supplied services (hereinafter, the “ESS”) include, but are not limited to:

• supply of electronic copies, provision of access to images, texts and information, including subscription to electronic newspapers, magazines, books, downloading of photos, graphic images, videos, etc.;
• provision of access to databases, including use of search systems and directory services;
• supply of audio-visual works, videos on demand, games, card games, including the supply of services for participation in such games;
• provision of access to information, commercial, educational and entertainment electronic resources, and other similar resources;
• supply of services of online learning without human involvement;
• provision of cloud technologies for data placement, etc.;
• supply (transfer of rights of use) of software and updates thereof, as well as remote maintenance of software and electronic equipment;
• provision of online advertising services, mobile applications and other electronic resources.

ESS shall not include, in particular:

• services ordered via the Internet, but provided without using the Internet;
• supply of goods and / or other services other than ESS, which incorporate ESS, if the cost of ESS is included in the total cost of such goods / services;
• supply of services of online learning with human involvement;
• supply of copies of works in the field of science, literature and arts on tangible media;
• provision of consulting services by e-mail;
• provision of Internet access services.

Tax rate

A 20% VAT rate will apply to ESS. VAT will be added to the price of services provided to the customers, except for services, which are exempt from VAT. Tax base and VAT amount will be determined in foreign currency (EUR or USD).

Obligation to register as a VAT payer

Any non-resident providing ESS to individuals in Ukraine must register as a VAT payer if the volume of ESS provided by such non-resident in the previous calendar year exceeds UAH 1 million. Taxpayers should monitor their transactions and, if their transactions in the previous year exceeded the UAH 1 million threshold, should apply for registration before 31 March of the current year.

Penalties for non-registration will apply in the amount of 30 minimum salaries established as of 1 January of the reporting year.

VAT reporting

Any non-resident registered as a VAT payer in Ukraine must file quarterly VAT returns in a simplified form within 40 calendar days following the last day of the reporting period (i.e. quarter). The VAT returns are to be filed electronically in Ukrainian or in English.

Non-residents must pay VAT on B2C supplies within 30 calendar days following the VAT return filing deadline.

Advertising surtax abolished

The Draft law abolishes the 20% tax on income received by non-residents from advertising activities in Ukraine.

Comments

The measures provided for by the Draft Law may significantly impact business activities of international companies supplying electronic services to individuals in Ukraine. Non-residents should already monitor the volumes of their ESS sales for FY2021 in order to be prepared to register as VAT payers in Ukraine and file local VAT reporting in FY2022.

Should you have any questions regarding this Tax Alert, please contact the experts of the Tax and Legal department.