Ukraine to introduce VAT on digital services from January 1, 2022

Starting on January 1, 2022, Ukraine now requires non-resident digital service providers to register, charge and remit VAT at the standard rate on the sale of digital services to local consumers (B2C). This aims to level the playing field with domestic suppliers and Ukraine joins the growing list of countries that have similar legislation and requirements on B2C electronically supplied services.

The VAT registration threshold is UAH 1 million per annum (approx. £28k /€32K/ $37k). Non-resident businesses that exceed this threshold will need to register for VAT by March 31, 2022 ahead of the first quarterly VAT return filing.

Scope of digital services

The Ukrainian Tax Service has confirmed the scope of digital/e-services, which appears similar to the definitions under European legislation and global norms for the VAT/GST taxation of digital services. Electronic services are defined as “services provided via the Internet automatically, using information technology and preferably without human intervention, including by installing a special application or application on smartphones, tablets, television receivers or other digital devices”.

Specific examples of taxable e-services listed in the guidance include:

• provision of electronic copies, access to images, texts and information - including but not limited to subscribing to electronic newspapers, magazines, books, access to or downloading photos, graphics, videos
• provision of access to databases - including the use of search systems and service catalogues on the Internet
• provision of electronic and digital information and provision of access to audio-visual works, video and audio works, games, including provision of services for participation in such games, provision of services for access to television programs/channels or their packages (unless simultaneously broadcast through the television network)
• provision of access to informational, commercial, entertainment electronic and other similar resources, in particular, but not limited to hosted information-sharing or video-sharing platforms
• provision of distance learning services on the Internet, provision of which does not require human participation, including provision of access to virtual classrooms, educational resources in which students complete online tasks and grades are set automatically, without human participation (or with minimal participation)
• provision of cloud services in terms of providing computing resources, storage resources or electronic communications systems using cloud computing technologies
• provision of software and updates, including electronic copies and access to them, as well as remote maintenance of software and electronic equipment
• provision of advertising services on the Internet, mobile applications and other electronic resources, advertising space, including through placement of banner advertising messages on websites, web pages or web portals.

It is important to note that the above specified list of electronic services is not exhaustive and can be expanded by the Ukrainian Tax Service.

Determining and evidencing customer location in Ukraine

Details on how to establish and evidence the location of individuals and whether they are deemed to be in Ukraine for VAT purposes of VAT has also been published.

1. If electronic services are provided by fixed means then the actual location of the individual (recipient of services) is the country of establishment of the telecommunication provider whose services were used by the recipient in the process of receiving electronic services.
2. If electronic services are provided by means of mobile communication, then the actual location of the individual (recipient of services) is the country identified by the mobile code of the country / SIM-card used to receive such services.
3. If electronic services are provided by means other than those specified in (a) and (b) above, including using an access card, the actual location of individual (recipient of services) is the country where such other means are located or where an access card was sent for its use (including location of device determined by its IP address used by the recipient of electronic service).

Additional evidence for determining the location of individual:

• payment address of individual

• other commercial information.

Affected digital service providers will need to consider what information they have available from customers and how this is reflected in their tax determination policy. Changes will need to be made to ecommerce platforms, billing systems, ERPs and tax engines, as well as other commercial considerations including changes to pricing, price points, invoicing and receipts.

Contact Avalara's indirect tax specialists to discuss digital services and how we can assist with registration and returns.