Ukrainian VAT on electronic services

In 2021 Ukrainian parliament introduced new VAT rules applicable to foreign companies providing the so-called “electronic services” in Ukraine. Below is a brief overview of the new Ukrainian VAT rules.

GFLO Consultancy provides consulting services in the field of tax law of Ukraine. Contact us today.

Table of Contents:

What are the new VAT rules about?

Simply put, foreign companies supplying electronic services to individuals / private entrepreneurs in Ukraine in the amount exceeding USD 37,000 (as at Dec 2021) within a calendar year should comply with new tax requirements in Ukraine.

How Ukraine defines “electronic services”?

Electronic services are the services supplied (1) through the Internet, (2) automatically, (3) by means of IT and (4) primarily without human intervention.

Non-exhaustive list of electronic services:

1. supply of electronic copies;
2. provision of access to images, text, information, audio, video, games (including participation in such games), TV programs;
3. provision of access to information, commercial, entertainment and other electronic resources;
4. provision of access to databases (including search engines);
5. distance teaching (unless the Internet is used exclusively as means of communication between a teacher and a student);
6. supply of software and its updates;
7. cloud services;
8. advertising services on the Internet, mobile apps, and other electronic resources.
   

What transactions are subject to Ukrainian VAT on electronic services?

Only B2C transactions (that is, supply of the electronic services to individuals / private entrepreneurs) may be subject to Ukrainian VAT on electronic services.

What transactions are exempt from Ukrainian VAT on electronic services?

Transactions exempt from Ukrainian VAT on electronic services:

1. supply of electronic services directly through a permanent establishment in Ukraine;
2. supply of goods / services via the Internet (mobile apps or other electronic sources) when service delivery itself is carried out without the Internet (e.g. catering or car rental);
3. provision of consulting services via e-mail;
4. processing payments for electronic services;
5. provision of access to the Internet.
   

How to determine that you supply electronic services to Ukrainian customers?

Ukrainian legislation contains special rules that foreign companies can apply in order to determine whether they indeed supply electronic services in Ukraine.

Typically, the outcome of such assessment depends primarily on the means through which electronic services are supplied (fixed landlines, mobile networks, etc.) and factual evidence (e.g., the customer’s billing address).

What about tax consequences?

If a foreign company is subject to Ukrainian VAT on electronic services, it should register as a VAT payer, collect VAT on electronic services supplied in Ukraine and remit the VAT to Ukrainian budget.

When foreign companies must register with Ukrainian tax authorities?

Registration deadline is set at 31st of March following a calendar year during which a foreign company supplied electronic services to individuals / private entrepreneurs in Ukraine in the amount exceeding USD 37,000 (as at Dec, 2021).

What is the VAT tax rate and tax basis?

Electronic services are subject to VAT tax rate of 20%.

Upon registration as a VAT payer foreign entity has to collect 20% VAT on electronic services supplied to individuals / private entrepreneurs in Ukraine and remit that VAT to Ukrainian budget.

How can we assist you?

We can:

1. assess whether or not your services are subject to Ukrainian VAT on electronic services;
2. develop a step-by-step guidance on how to comply with Ukrainian VAT requirements;
3. assist with Ukrainian VAT compliance.