February 14, 2022
Ukraine implements new VAT rules for nonresidents supplying electronic services to Ukrainian customers
In January 2022, the Law of Ukraine No. 1525-IX of 3 June 2021 "On Amendments to the Tax Code of Ukraine on the abolishment of the taxation of income received by non-residents in the form of payment for production and / or distribution of advertising and improving value-added taxation on the provision of electronic services to individuals by non-residents” (Law No. 1525), took effect.
Law No. 1525 has introduced new value added tax (VAT) treatment for supplies of electronic services by nonresidents to Ukrainian private individuals. As of 2022, such nonresidents may need to register for VAT in Ukraine, charge 20% VAT on their services, submit simplified VAT tax returns and pay tax in Ukraine.
Starting from January 2022, Ukrainian tax authorities started accepting VAT registration applications filed by nonresidents through the special web-portal.
Further to our Newsletter of 9 June 2021, this Alert summarizes the main VAT rules for electronic services, covering the recently adopted regulations and clarifications from the tax authorities.
Concept of "electronic services"
Under Law No. 1525-IX, electronic services are defined as the services provided via the Internet in an automated way, using IT and predominantly without human intervention, including by means of installation of applications on smartphones, tablets, TVs or other digital devices.
Such services include, but are not limited to:
As noted, the above list of electronic services is not exhaustive and may be subject to broad interpretation.
The Law provides a list of transactions which do not qualify as “electronic services”. Such services include:
In addition, where electronic services represent the supply of software and updates thereto – such services are temporarily exempt from VAT (until 1 January 2023).
As such, proper classification of services is crucial to correctly determine their VAT treatment. This may require additional analysis of technical aspects of the supply and services’ nature, or clarifications from the authorities.
Party liable for VAT upon supply of electronic services
A nonresident without a permanent establishment (PE) in Ukraine, who supplies electronic services to Ukrainian private individuals, is considered as a VAT payer.
A nonresident does not qualify as a VAT payer where it:
Registration as a VAT payer
A nonresident must file a registration application, where total aggregate amount of its taxable supplies for the preceding calendar year exceeded the threshold of UAH1 million.
A nonresident who supplies electronic services and did not reach the threshold may register for VAT voluntarily.
Submission of the application for registration as the VAT payer
A special portal solution for nonresident users who supply electronic services went live on 1 January 2022 enabling them to submit an application of registration as the VAT payers.
To register as the VAT payer, a nonresident person who provides electronic services to individuals whose place of supply is located in the customs territory of Ukraine, must submit an Application for registration of a non-resident as the VAT payer under the form N 1-POH.
The application must be supplemented with copies of:
The procedure for registration as a VAT payer, as well as the application form for registration are approved by the order of the Ministry of Finance of Ukraine No. 637 of 7 December 2021.
Reporting period, tax reporting, tax payment
Where a nonresident has failed to timely register for VAT, such nonresident will be penalized by a fine of 30 minimal wages as of the beginning of the relevant year (for 2022, this amount equals to UAH195,000).
Clarifications from the tax authorities
Among others, the tax authorities have expressed the following views:
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLC, Kiev