Draft law on VAT taxation of services electronically supplied by non-residents to Ukrainian individuals was adopted in the first reading
On 17 February 2021, the Ukrainian Parliament adopted in the first reading 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 second hearing. If adopted, the Draft Law will enter into force on the day following the day of its promulgation and will apply to reporting periods starting from 01 January 2022.
Definition of electronically supplied services
For the purposes of the Draft Law, electronically supplied services (hereinafter, the “ESS”) include, but not limited to:
- supply of images or texts, including photographs, e-books and magazines, etc.;
- 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;
- 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 (transfer of rights to use) of programs for computers (including computer games), databases on physical data storage devices;
- provision of consulting services by e-mail;
- provision of Internet access services.
A 20% VAT rate will apply to ESS. VAT will be included in the price of services provided to the customers.
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 at 100% of the cost of provided ESS.
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.
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.
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 assess their sales in Ukraine to determine any potential impact of the new legislation and analyze the new provisions in order to prepare for possible local VAT reporting.
Should you have any questions regarding this Tax Alert, please contact the experts of the Tax and Legal department.