From January 1, 2022, all foreign IT companies that provide online services to Ukrainian customers will start to pay 20% value added tax (“VAT”) on top of the cost of services sold in Ukraine. Relevant Law No.1525-ІХ dated June 3, 2021, was signed by the president and has entered into force.
To whom does it apply?
It is envisaged that a foreign company that has no representative office and supplies e-services to individuals and private entrepreneurs in Ukraine shall be registered as a VAT payer if the amount of transactions involving the supply of e-services in total exceeds UAH 1,000,000. (approx. US$36,650).
"Supply of e-services" includes inter alia streaming services, electronic magazines and paid resources, installation of paid mobile applications, downloading paid updates to programs, provision of advertising services on the Internet, downloading and watching online movies, books, and sites, photos, videos, databases, supply of software, online games, cloud data storage services, provision of search engine services, etc.
Thus, the newly-adopted law applies to social networks Facebook, Twitter, Instagram, TikTok, YouTube, Netflix, Google, tech companies Apple and Microsoft, domain and hosting registration services, as well as many other IT companies.
What services will be exempt from taxation?
It is envisaged that VAT shall not be assessed on the provision of educational services to Ukrainian customers through granting access to public educational, scientific, and informational resources on the Internet, provision of platforms for online learning with a teacher, e-payment processing services, reservation of goods/services ordered via the Internet (in particular, hotel services, car rental, passenger transport services, etc.).
How will it be determined that an electronic service is provided in Ukraine?
Services shall be considered to be provided on the territory of Ukraine and shall be subject to VAT if:
- Fixed communication lines (the location of the telecommunications provider whose services were used by the recipient when receiving the electronic service) are located in Ukraine.
- When receiving the service, a customer is identified by the mobile SIM card code of a Ukrainian telecommunications service provider (+380);
- Means of communication are located in Ukraine, or access cards for their use (including the location of the IP address) are sent to Ukraine.
- The individual who is the recipient of services has a Ukrainian payment address; the bank details of the account from which e-services were paid are in a Ukrainian bank; any other commercially important information is indicated to be located in Ukraine.
What is the procedure for registration in Ukraine?
For the purposes of registration of a non-resident as a VAT payer, a special online portal will be created (the “System”), where the non-resident can register by submitting the following documents: (1) an application for registration as a VAT payer drawn up in the English language in accordance with the prescribed form; (2) an excerpt from a foreign register on the state registration of a company, organization (trade, bank or another register); and (3) a document on the assignment of the identification number (code) to the non-resident in the country of the non-resident’s registration.
Registration of a non-resident shall take three business days. A notice on the registration as a VAT payer indicating an individual tax number of the non-resident in Ukraine and containing the information on the reporting deadlines, due dates and procedure for payment of tax liabilities shall be sent to the email address indicated in the application.
The reporting period for a non-resident shall be per quarter. Within 40 days after the end of the quarter, a non-resident shall be obliged to file a simplified tax return in the electronic form via the System, regardless of whether such non-resident has supplied e-services in Ukraine during the reporting period.
20% VAT shall be added to the cost of e-services, except for e-services that are expressly exempt from VAT. The amount of VAT liabilities shall be paid in foreign currency (EUR or US$) during 30 calendar days after the expiry of the time limit set for filing a simplified tax return. Payment details for tax processing will be indicated in the System.
What is the liability for a violation?
Provision of e-services by a non-resident to Ukrainian customers without registration of such non-resident as a VAT payer entails imposition of a penalty on the non-resident in the amount of 30 minimum wages set as of 1 January of the reporting (tax) year (in 2021 - UAH 180,000 or US$ 6,600).
The State Tax Service of Ukraine shall send to a non-resident electronic requests to submit a simplified tax return and/or pay VAT on supplied e-services through the System, and it will simultaneously send them to the e-mail address indicated by the non-resident during the registration.
When does it enter into force?
The above rules shall take force as from January 1, 2022.
If a non-resident has already been providing e-services on the territory of Ukraine and the value of such services in 2021 exceeds UAH 1 million, such non-resident shall submit an application and documents for registration as a VAT payer through the System no later than March 31, 2022.