On 2 July 2021, Law of Ukraine “On Amending the Tax Code of Ukraine on Abolition of Taxation of Income Received by Non-Residents in the Form of Payment for Production and/or Distribution of Advertisements and Improvement of Value-Added Taxation of Transactions Involving the Supply of Electronic Services by Non-Residents to Individuals” No. 1525-ІХ (the “Law”) entered into force. The Law introduces VAT on digital services supplied by non-residents to Ukrainian individual customers and abolishes 20% withholding tax on advertising services.
Persons liable to tax
Non-residents without permanent establishments in Ukraine that supply digital services to individual customers located in Ukraine are liable to VAT on digital services. If services are supplied through a non-resident intermediary, tax payment obligation may be imposed on such intermediary.
Scope of digital services
The Law provides for a non-exclusive list of digital services that fall within its scope. For example:
- supply of digital copies, granting access to images, texts, audio-visual works including movies and video games, etc., for instance via subscription plans
- granting access to data banks, in particular via search engines and internet catalogues
- digital advertising services
- other digital services supplied via the internet with certain exceptions
VAT registration and other obligations
A non-resident may apply for VAT registration voluntarily. The registration is mandatory if the volume of digital services supplied by a non-resident to individual customers located in Ukraine during a calendar year exceeds UAH1 million (approx. EUR 30,700) (“Mandatory Registration”).
Once the registration is completed, the non-resident must include 20% VAT in the invoices issued to individual customers located in Ukraine, submit quarterly VAT returns, and pay VAT.
Non-residents will be able to register and submit VAT returns online. Also, non-residents may choose to pay tax either in EUR or USD. A Ukrainian bank account is not required.
Initial tax period
The first tax period starts on 1 January 2022. Non-residents subject to the Mandatory Registration based on the volume of services supplied in 2021 must file their VAT registration applications by 31 March 2022.
The Law abolishes 20% withholding tax on advertising services supplied by non-residents to Ukrainian tax residents with effect from 1 January 2022.
By Vadim Medvedev, Partner, and Oles Bidnoshyia, Associate, Avellum