Ukraine: VAT on digital services (20%)

Digital services provided by non-residents to individuals or private entrepreneurs in Ukraine are subject to value added tax (VAT) at a rate of 20% (provided the Ukrainian recipients of the services are not registered as VAT-payers).

The measures are included in newly enacted law.

For these purposes, digital services are those provided via the internet—including by means of installation of applications on smartphones, tablets, and televisions—and include:

• Supplies of electronic copies or the granting of access to images, text, and information—including subscriptions to electronic newspapers, magazines, books
• Granting of access to databases including search engines and directory services
• Supplies of electronic copies and/or the granting of access to audio or video, games, as well as supply of certain services granting access to TV programmes (i.e., channels)
• Granting of access to information, commercial entertainment, and other similar digital resources such as resources hosted on platforms for sharing access to information or video materials
• Supplies of cloud services
• Supplies of software and related updates including supply of electronic copies, and the granting of access to software, as well as the supply of remote support services
• Supplies of advertising services on the internet, mobile applications, and other electronic resources and supplies of advertising space

The new law also provides a list of services that will not be taxable (including supplies of certain educational services via the internet, supplies of advisory services made by email, and the granting of access to the internet and certain other services).

Also, there is an exemption from VAT for the supply of software. This exemption is effective until 31 December 2022. 

The place of supply of potentially taxable digital services will be determined using information about the location of the recipient.  One possible option suggested by the tax authority for determining the place of supply is for non-residents to ask the customers what is their location. The new law itself does not provide for any specific document confirming the supply of services.

VAT registration with the Ukrainian tax authorities is to be made using special software. Non-residents are to file certain supporting documents (such as an extract from the commercial register, copy of taxpayer identification number (TIN)).

The obligation to register for VAT arises if the annual revenue subject to VAT equals or exceeds UAH1 million (approximately U.S. $36,600).

The new law also provides an option for voluntary VAT registration.

The reporting period for non-residents will be one calendar quarter. VAT liabilities will arise as of the last day of respective quarter.

Non-residents will not be required to issue VAT invoices. However, they are required to prepare and file a “simplified” VAT return. This simplified VAT return (prepared in either Ukrainian or English) is to be submitted via an electronic portal. The new law also provides a special simplified reporting procedure for non-residents supplying digital services. 

If a non-resident supplies digital services without first registering as a VAT-payer, additional VAT liabilities may be imposed and a tax penalty assessed.
 

For more information, contact a KPMG tax professional:

Philippe Stephanny | +1 202 533 3082 | philippestephanny@kpmg.com