Ukraine: VAT on digital services supplied by non-residents

VAT rate of 20% on digital services supplied by non-residents to Ukrainian customers

VAT rate of 20% on digital services supplied by non-residents to Ukrainian customers

The Ukrainian parliament on 3 June 2021 passed, in a second reading, a draft law measure introducing value added tax (VAT) on digital services supplied by non-residents to Ukrainian customers.

The rate of VAT is 20%.

Scope of provision

Under the measure, if a non-resident of Ukraine supplies digital services via the internet to Ukrainian individuals or private entrepreneurs that are not registered as VAT payers (business-to-consumer or B2C transactions), such supplies will be subject to VAT at a rate of 20%.

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

There is a broad list of services that are considered to be digital services for these VAT purposes and, in general, includes:

  • Supply of electronic copies or granting access to images, texts, and information including subscriptions to electronic newspapers, magazines, and books, providing access to and / or downloading images, videos, etc.
  • Access granted to databases, including search engines and directory services
  • Supply of electronic copies and / or access granted to audio or video games, supplies of certain services with access granted to TV programs (channels)
  • Access granted to information, commercial, entertainment, and other similar digital resources, in particular, but not limited to those hosted on platforms for sharing access to information or video materials
  • Supply of cloud services
  • Supply of software and related updates, including supplies of electronic copies, access granting to software as well as supple of remote support services
  • Supply of advertising services on the internet, mobile applications and other electronic resources, supply of advertising space, etc.

There is also a list of services that will not subject to the new VAT rules, including booking services completed via the internet (provided that the actual supply takes place without the use of the internet, for example, car rentals); supply of works of science, literature, and art on physical objects; supply of distance-learning services via the internet, if the internet is used exclusively as a means of communication; supply of consulting services by e-mail; supply of internet access services (for example, services supplied by internet service providers); and some other services.

Taxpayers

Non-residents of Ukraine supplying digital services (provided that they do not have a permanent establishment in Ukraine) are deemed to be VAT-payers in Ukraine.

At the same time, certain non-residents of Ukraine that provide digital services as intermediaries or exclusively perform payment processing functions without the actual supply of digital services will not be considered to be VAT-payers.

The obligation to register as a VAT-payer will arise if the total amount of supplies for the previous year is UAH 1 million or more. There is an option for voluntary registration as a VAT-payer.

Place of supply

The new rules relate only to supplies of digital services to Ukrainian individuals or private entrepreneurs who are not registered as VAT payers in Ukraine (B2C transactions).

Generally, the place of supply of digital services will be determined using information about the location of services recipient. Such information will be the location of the internet provider, a country code of SIM card or IP address. Additionally, certain information such as the payment address, location of the bank where the account is opened, through which digital services are paid, as well as other business information could be considered as additional evidence to determine the location of services recipient.

If services are supplied to private entrepreneurs, a location of the services recipient will be determined by the place of the private entrepreneurs’ registration.

Tax compliance obligations

There is a special reporting procedure for non-residents supplying digital services. The reporting period for such non-residents will be the calendar quarter.

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 could be prepared either in Ukrainian or English and would need to be submitted via an electronic portal to be developed by the tax authorities specially for these purposes.

Tax control

The draft law provides for the right of Ukrainian tax authorities to request information on a supply of digital services, the cost of services provided, and the terms of payment from non-residents of Ukraine supplying such services.

Activities of non-residents of Ukraine supplying digital services in Ukraine will be subject to a new type of tax audit—a special off-site tax audit.

Tax penalties

If a non-resident of Ukraine supplies digital services without registration as a VAT-payer in Ukraine, the Ukrainian tax authorities can assess additional VAT liabilities based on the amount of the supplied digital services. Additionally, this non-resident could be subject to a tax penalty in the amount of 30 minimum wages (approximately €6,000 in 2021).

Effective date

The effective date is 1 January 2022. Nevertheless, if in 2021, the total value of the supplied digital services exceeds UAH 1 million, a non-resident must register as a VAT-payer in Ukraine by 31 March 2022.


For more information, contact the head of KPMG’s Global Indirect Tax Services:

Lachlan Wolfers | +852 2685 7791| lachlan.wolfers@kpmg.com

 

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