Scope of new law
1. Digital services will be subject to a 20% VAT if supplied by non-residents of Ukraine to Ukrainian individuals or private entrepreneurs (not registered as VAT payers).
2. Digital services are services provided via the Internet, including by means of installation of applications on smartphones, tablets, TVs, etc. Among these, the following fall within the confirmed list of digital services:
- supply of electronic copies or granting access to images, text, and information; including subscriptions to electronic newspapers, magazines, books; providing access to and/or downloading images, videos, etc.;
- granting access to databases, including search engines and directory services;
- supply of electronic copies and/or granting access to audio or video, games, as well as supply of certain services granting access to TV programmes (i.e. channels);
- granting access to information, commercial entertainment, and other similar digital resources, particularly (but not limited to) resources hosted on platforms for sharing access to information or video materials;
- supply of cloud services;
- supply of software and related updates, including supply of electronic copies, and granting access to software, as well as supply of remote support services;
- supply of advertising services on the Internet, mobile applications, and other electronic resources, and supply of advertising space, etc.
3. The new law also provides for a list of certain services that will not constitute a taxable event. This includes supply of certain educational services via the Internet, supply of advisory services vie emails, granting access to the Internet and certain other services.
Place of supply
4. The place of supply of digital services will be determined using information about the location of a digital services recipient. The tax authorities indicated that as one possible option non-residents could provide its customers with a questionary to determine the place of supply of digital services.
5. The new law does not provide for any specific document confirming supply of services.
6. VAT registration with the Ukrainian tax authorities should be performed via special software. It is contemplated releasing this software after 1 January 2022. Non-residents should file certain supporting documents (extract from the commercial register, copy of TIN).
7. The obligation to register for VAT in Ukraine arises if the annual VATable revenue equals or exceeds UAH1 million. The new law also provides an option for voluntary VAT registration.
8. The reporting period for non-residents will be one calendar quarter. VAT liabilities will arise as of the last day of respective quarter.
9. Non-residents will not be required to issue VAT invoices. However, they will be required to prepare and file a simplified VAT return. This simplified VAT return (prepared in either Ukrainian or English) would be submitted via an electronic portal that is yet to be developed by the tax authorities specifically for these purposes.
10. The new law provides for a special simplified reporting procedure for non-residents supplying digital services. Non-residents should file VAT returns within 40 calendar days following the reporting quarter. Simplified VAT returns (prepared in either Ukrainian or English) would be submitted via an electronic portal.
11. If a non-resident of Ukraine supplies digital services without registration as a VAT payer in Ukraine, the Ukrainian tax authorities could assess additional VAT liabilities based on the amount of digital services supplied and request that the supplier registers as a VAT payer in Ukraine. Unregistered non-residents could also be subject to a tax penalty in the amount of 30 minimum wages (approximately EUR6,000 as of 2021).
12. The effective edition of the Ukrainian Tax Code provides for a VAT exemption for supply of software. This exemption is effective until 31 December 2022. The tax authorities indicated that if digital services supplied by non-residents fall within the ambit of this exemption, such services will not be subject to a 20% VAT.
How can KPMG assist you?
- We will analyse whether the services supplied by a foreign company fall within the scope of ‘digital services’ for Ukrainian VAT purposes and comment on whether VAT registration is required.
- We can make an initial VAT registration and develop a steps plan to ensure ongoing compliance with the new VAT rules.
We can provide VAT-compliance outsourcing services.
Oleksandr Boboshko, partner, Head of International Corporate Tax Group KPMG in Ukraine, firstname.lastname@example.org
Marko Lyzak, manager, International Corporate Tax Group KPMG in Ukraine, email@example.com