On 7 December 2017 the Parliament of Ukraine voted to introduce a number of amendments to the Tax Code of Ukraine* (the “Amendments”) aimed at ensuring the balance of the budget revenues in 2018.
The Amendments re-define “royalty” for tax purposes with a view to explicitly excluding from the definition payments for the transfer of the right to distribute copies of software products without the right to reproduce them or when their reproduction is limited to use by the end user.
These changes make it clear that payments for the transfer of software from an IP owner to a distributor and/or reseller may not be considered royalties for tax purposes. Instead, under the Amendments these payments are subject to a temporary exemption from VAT applicable to the supply of software products until 1 January 2023. This VAT exemption now covers those operations with software, payments for which are excluded from the scope of royalties for tax purposes.
The Amendments are yet to be signed into law by the President of Ukraine. When signed and published, the clarified scope of royalties and the VAT exemption on supplies of software will become effective on 1 January 2018.