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.
Other changes
The Law abolishes 20% withholding tax on advertising services supplied by non-residents to Ukrainian tax residents with effect from 1 January 2022.
