The Ukrainian Parliament has recently adopted the law introducing a 20% VAT on digital services supplied to individuals located in Ukraine by non-resident businesses (hereinafter – the Law).
New rules on VAT taxation of non-resident suppliers of digital services shall apply to tax periods starting from 1 January 2022.
The Law shall apply to non-resident businesses who do not have a permanent establishment in Ukraine and supply digital services to individuals, including private entrepreneurs, in the customs territory of Ukraine by 1) providing access to digital services through an electronic data interface, 2) providing technical, organisational, informational, and other capabilities by means of information technologies for establishing contacts and concluding agreements between sellers and buyers, 3) providing digital services under intermediary agreements.
Affected non-resident businesses are required to register as VAT payers with the tax authorities of Ukraine. The obligation to register arises if the total volume of digital services supplied to Ukraine-based individuals exceeds the amount equivalent to UAH 1,000,000 (approx. EUR 31,100) within the preceding calendar year.
Affected suppliers are obliged to submit a simplified VAT return in an electronic form on a quarterly basis and pay the respective VAT liabilities based on the sales to individuals in Ukraine.
Non-resident suppliers are not allowed to deduct any associated input VAT, nor are they obliged to issue and register VAT invoices.
Should the non-resident supplier who is registered as a VAT payer in Ukraine fail to remit the amount of tax to the budget of Ukraine, the Ukrainian tax authorities will issue a tax notice regarding its obligation to pay the tax, and may also initiate a tax collection procedure in accordance with international treaties of Ukraine.
Under the Law, digital services shall include services delivered over the Internet, in an automated manner, using information technologies, with minimal human intervention, including by installing a special application on smartphones, tablets, or other digital devices. These services include, inter alia, the following:
a) supply of electronic copies of, or provision of access to images, texts, video and audio works, games and information;
b) provision of access to databases;
c) supply of distance learning services on the Internet, the carrying out of which does not require human participation;
d) supply of cloud-based services;
e) supply of software and its updates;
f) supply of advertising services on the Internet.
The list of digital services is not exhaustive and may be supplemented by other services on a case-by-case basis.
At the same time, some services are excluded from the definition of “digital services”, e.g. provision of web access, consulting via email, supply of distance learning services on the Internet, provided that the Internet is used as a means of communication between the tutor and the student, etc.
The place of supply of digital services is determined as the location of the recipient of such services. To determine the location of the recipient, different factors may be taken into account, such as the location of the telecommunication provider, country of the SIM card of the customer, location of the device based on its IP address, billing address and bank details of the customer, etc.
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