Article
Taxation of the Services Electronically Supplied by Non-Residents
Frequently asked questions
On 3 June 2021, the Ukrainian Parliament adopted the Law “On Amending the Tax Code of Ukraine Concerning the Abolition of Taxation of Income Received by Non-Residents in the Form of Payment for Production and/or Distribution of Advertising and Improvement of the Procedure of Value-Added Taxation of Transactions on the Supply of Electronic Services by Non-Residents to Individuals”, No. 1525-IX.
The Law makes amendments to the Tax Code of Ukraine that introduce VAT taxation of the services supplied electronically by non-residents to individuals.
Non-residents exceeding the registration threshold for 2021 should register for VAT purposes in Ukraine by 31 March 2022 and pay VAT liabilities for the periods starting from 1 January 2022.
The measures provided for by the Law may significantly affect 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 for registration as VAT payers in Ukraine and for filing of local VAT reporting since FY2022.
In the attachment, you can familiarize yourself in more detail with the Ukrainian rules for VAT taxation of electronic services provided by non-residents.
Ukrainian VAT rules for electronically supplied services
Frequently asked questions
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How are electronic services defined for VAT purposes?
Under the Ukrainian legislation, electronic services are the services provided automatically via the Internet by using information technologies and mostly without human intervention.
Electronic services may include the following:
- Supply of electronic copies, provision of an access to images, texts, and information, including subscription to electronic newspapers, magazines, books, downloading of photos, graphic images, videos, etc.;
- Provision of an access to databases, including the 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 an access to information, commercial, educational, and entertainment electronic resources and other similar resources;
- Supply of online learning services 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.
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Are there any exceptions to taxation of electronic services?
Yes, electronic services for the purposes of VAT taxation do not include the following:
- 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 online learning services 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 the Internet access services.
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Which supplies of electronic services will be subject to VAT?
The new VAT rules will apply to the supplies of electronic services by non-residents to Ukrainian individuals and to individual entrepreneurs not registered as VAT payers in Ukraine.
The new VAT rules will not apply to the supplies of electronic services by non-residents to Ukrainian businesses and individual entrepreneurs registered as VAT payers in Ukraine. Such services should be taxed by Ukrainian recipients under the reverse-charge mechanism.
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Are there any penalties for non-registration or late registration for VAT purposes in case the threshold of supplies is exceeded? What penalties are provided in case of non-payment or late payment of VAT liabilities?
Yes, penalties for non-registration or late registration will apply in the amount of 30 minimum wages established as of 1 January of the reporting year (since 1 January 2022, UAH 195 thousand, or EUR 6.1 thousand).
Unintentional late payment, partial payment or non-payment of VAT liabilities for less than 30 days from the payment deadline results in administrative penalty of 5% from the amount of paid tax debt.
Unintentional late payment, partial payment or non-payment of VAT liabilities for more than 30 days from the payment deadline results in administrative penalty of 10% from the amount of paid tax debt.
Intentional late payment, partial payment or non-payment of VAT liabilities results in administrative penalty of 25% from the amount of unpaid, partially unpaid or untimely paid tax liabilities.
In case the same violation is committed again within 1095 days or which led to the delay of payment for more than 90 days, it will result in administrative penalty of 50% from the amount of unpaid, partially unpaid or untimely paid VAT liabilities.
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When do VAT liabilities on electronically supplied services arise?
VAT liabilities arise on the last day of the reporting period in which the services are paid for.
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How often are VAT reports submitted?
VAT returns should be submitted on a quarterly basis.
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Are there any requirements to VAT invoices for the electronic services provided?
Non-residents are not obliged to prepare and file VAT invoices. As regards payment (commercial) invoices on supplies of electronic services to Ukrainian individuals, they may be issued in any form, since the Tax Code of Ukraine does not establish any specific requirements.
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In which currency should VAT on electronic services be paid?
VAT should be paid in EUR or USD to a special currency account in the State Budget of Ukraine.
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May the Ukrainian tax authorities conduct tax audits of non-residents?
Yes, they may, but only a VAT return will be subject to desk tax audit. Desk tax audit will be conducted by the tax auditors in the tax office on the basis of VAT returns of the non-resident taxpayer as related to the calculation of their VAT liabilities.
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