Bill No. 4184 (hereafter, “the Bill”) introducing a 20% VAT on digital services supplied to individuals located in Ukraine by non-resident businesses was submitted to the Ukrainian Parliament at the end of 2020.
On 3 June 2021, the Ukrainian Parliament adopted the Law “On Amendments to the Tax Code of Ukraine regarding the abolition of the taxation of income received by non-residents in the form of payments for the production and/or distribution of advertising and improving the taxation procedure with value added tax on transactions for the supply of digital services by non-residents to individuals” (hereafter, “the Law”).
After the Ukrainian Parliament’s consideration of the Bill, its text was improved and so the Law differs from the first version of the Bill.
The Law came into force on July 2, 2021, except for certain provisions. In particular, VAT taxation on the supply of digital services to individuals by non-resident businesses will apply to tax periods starting from 1 January 2022.
As was suggested in the Bill’s first version, the taxpayer will be a non-resident who does not have a permanent establishment in Ukraine and supplies its own digital services to individuals, including private entrepreneurs, in the customs territory of Ukraine by providing 1) access to digital services through an electronic data interface, 2) technical, organisational, informational, and other capabilities by means of information technologies and systems for establishing contacts and concluding agreements between sellers and buyers, and 3) digital services under intermediary agreements.
At the same time, the following adjustments were made in the Law’s final version:
Affected non-resident businesses are required to register as non-resident taxpayers who supply digital services to individuals in the customs territory 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 (approximately USD 37,400) within the preceding calendar year.
In accordance with the Law, registration of non-resident businesses as VAT payers will be carried out online through a Ukrainian tax authority website using the electronic identification of non-resident taxpayers. The Ukrainian tax authorities have not yet developed and approved the manner of the electronic identification of non-resident taxpayers.
Affected non-resident businesses are obliged to fill in and submit a simplified VAT return, which will happen electronically through a special web portal that the Ukrainian tax authorities will develop. A simplified VAT return has to be submitted by every non-resident business who is duly registered as a VAT payer regardless of whether the supply of digital services was carried out during the quarterly reporting period.
Non-resident suppliers are not allowed to deduct any associated input VAT, nor are they obliged to issue and register VAT invoices.
Non-resident suppliers will pay their VAT liabilities exclusively in foreign currency (either US dollars or Euro).
If the non-resident supplier who is registered as a VAT payer in Ukraine fails to submit a simplified VAT return or to remit the amount of tax to the Ukrainian public budget authorities, then the Ukrainian tax authorities will issue a tax notice regarding such a supplier’s obligation to submit a VAT return or to pay the tax obligation amount. If the non-resident taxpayer still fails to fulfill its obligations, then the Ukrainian tax authorities may initiate a tax collection procedure in accordance with Ukraine’s international treaties.
In the Law’s final version, the definition and list of digital services has been clarified. The Law’s published text states that digital services are 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, television or other digital devices. These services include, among others, the following:
At the same time, the following services are excluded from the definition of “digital services”:
The Law’s general definition of the “place of supply” of digital services has remained the same as in the Bill, i.e. the location of the recipient of such services.
The place of supply of digital services to individuals registered as private entrepreneurs is a place of such registration.
However, the Law has revised the procedure for determining the place of supply of digital services to individuals not registered as private entrepreneurs. The location of such individuals will be determined as follows:
Additional factors that may be used to prove the location of an individual are the billing address, banking details (e.g. the location of the individual’s bank) and other commercial information.
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