Kyiv Tax Newsletter, July 2021 – From 2022, online services purchased from a non-resident will be subject to 20% VAT in Ukraine | Dentons
From January 1, 2022, all foreign IT companies that provide online services to Ukrainian customers will start paying 20% value added tax (“VAT”) In addition to the cost of services sold in Ukraine. Law No. 1525-ІХ of June 3, 2021 was signed by the President and entered into force.
Who does it apply to?
It is planned that a foreign company that does not have a representative office and provides electronic services to individuals and private entrepreneurs in Ukraine will be registered as a VAT taxpayer if the total amount of transactions involving the supply of electronic services exceeds 1 million UAH. (approximately US $ 36,650).
The “provision of electronic services” includes, inter alia, streaming services, electronic magazines and paid resources, installation of paid mobile applications, downloading of paid program updates, provision of advertising services on Internet, downloading and viewing of films, books and online sites, photos, videos, databases, provision 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, technology companies Apple and Microsoft, domain registration and hosting services, as well as many other IT companies.
What services will be exempt from tax?
It is expected that VAT will not be assessed on the provision of educational services to Ukrainian customers by granting access to public educational, scientific and informative resources on the Internet, the provision of e-learning platforms with a teacher , electronic 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 are considered to be provided in the territory of Ukraine and are 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 code of the mobile SIM card of a Ukrainian telecommunications service provider (+380);
- The 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 person receiving the services has a Ukrainian payment address; the bank details of the account from which the electronic services were paid are in a Ukrainian bank; all other commercially important information is indicated as being located in Ukraine.
What is the registration procedure in Ukraine?
For the purpose of registering a non-resident as subject to VAT, 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 taxpayer drawn up in the English language in accordance with the prescribed form; (2) an extract from a foreign register on the state registration of a company, organization (trade, bank or other register); and (3) a document on the assignment of the identification number (code) to the non-resident in the country registration of the non-resident.
The registration of a non-resident takes three working days. A notice on registration as a VAT taxpayer indicating an individual tax number of the non-resident in Ukraine and containing information on the reporting deadlines, due dates and the procedure for paying tax debts should be sent to the e-mail address specified in the request. .
The reporting period for a non-resident is quarterly. Within 40 days of the end of the quarter, a non-resident is required to file a simplified tax return in electronic form through the system, regardless of whether or not he has provided electronic services in Ukraine during the reporting period.
A 20% VAT will be added to the cost of e-services, with the exception of e-services expressly exempt from VAT. The amount of VAT payable will be paid in foreign currency (EUR or US $) for 30 calendar days after the expiration of the deadline for filing a simplified tax return. Payment details for tax processing will be shown in the system.
What is the liability for any violation?
The provision of electronic services by a non-resident to Ukrainian customers without registration of that non-resident as a VAT taxpayer results in the imposition of a penalty on the non-resident in the amount of 30 minimum wages set in January 1 of the (tax) declaration (in 2021 – 180,000 UAH or US $ 6,600).
The State Tax Service of Ukraine will send to a non-resident electronic requests to submit a simplified tax declaration and / or pay VAT on electronic services provided through the System, and simultaneously send them to the e- email indicated by the non-resident during registration.
When does it come into effect?
The above rules will come into effect on January 1, 2022.
If a non-resident has already provided electronic services in the territory of Ukraine and the value of these services in 2021 exceeds 1 million UAH, then that non-resident must submit an application and documents for registration as as VAT taxpayer via system no. no later than March 31, 2022.