Plans to tax supplies of digital services from non-residents

Ukraine follows the global trend of taxing the cross-border sales of digital services from foreign suppliers.

Recently a draft law no. 2634 amending the tax code of Ukraine has been introduced by the Head of Finance, Tax and Customs Committee of the Ukrainian parliament, proposing to extend Ukrainian VAT rules to B2C cross-border sales of digital services.

The explanatory note to the draft law says that the draft law is aimed at (1) increasing revenues of the state budget, and (2) establishing equal competitive environment for foreign and domestic suppliers of digital services.

The draft law introduces a 20% VAT on digital services supplied to individuals located in Ukraine by non-resident suppliers. Proposed amendments do not affect the B2B sales for which VAT is remitted by Ukraine-based businesses under the reverse-charge mechanism.

Digital services are defined as services delivered over the Internet, in an automated manner, using information technology, with minimal human intervention. Such services shall include, inter alia, the supply of images, photos, texts, including electronic books and magazines, audio-visual works, games, gambling, providing access to information, commercial, educational and entertainment electronic resources, storage of data using cloud-based technologies, supply of software and updates to it, as well as provision of remote software maintenance services, provision of advertising space on websites, mobile applications, and other electronic resources, etc. The list of digital services is not exhaustive and may be supplemented by other services depending on their nature.

The affected suppliers will have to register with the Ukrainian tax authorities. The registration is obligatory for suppliers who reached the total volume of digital services supplied to Ukraine-based individuals of UAH 1,000,000 (~ EUR 37,000) within the preceding calendar year. After registration, non-resident digital services suppliers will have to submit a simplified VAT return to Ukrainian tax authorities on a quarterly basis, as well as collect and remit VAT on sales made to Ukraine-based individuals.

If the draft law is adopted by the Ukrainian parliament, its provisions will be applicable to the tax periods starting from 1 January 2021.