VAT on electronic services of non-residents: the draft Law is adopted in the first reading

On February 17, 2021, the Verkhovna Rada of Ukraine adopted in the first reading the draft Law¹, according to which non-resident companies that provide electronic services to individuals in Ukraine are required to apply for registration as a VAT payer by March 31, 2022, if the total amount of such operations during 2021 exceeds the equivalent of UAH 1 million.

The draft Law prescribes a 20% VAT rate on electronic services.

Electronic services include, among others:

• supply of images or texts, including photographs, e-books and magazines
• supply of audiovisual works, video to order, games, gambling
• providing access to information, commercial, educational and entertainment electronic resources and other similar resources
• provision of cloud technologies for data placement
• supply (transfer of rights to use) of software and updates to it
• provision of advertising services on the Internet, mobile applications and other electronic resources.

At the same time, electronic services do not include the following operations:

• supply of services ordered via the Internet, when the actual supply is made offline
• supply (transfer of rights to use) of software for electronic computers (including computer games), databases on tangible media
• providing consulting services by e-mail
• provision of Internet access services.

Also, the draft Law abolishes the remittance tax on payments to non-residents for the production and/or distribution of advertisements. Currently the tax is paid by Ukrainian buyers of advertisements at a 20% rate and at their own cost.

We assume that the draft Law may be amended before the second reading. Thus, we will monitor the developments and provide you with more details after the final adoption.

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^{1 Draft Law of Ukraine “On Amendments to the Tax Code of Ukraine on Abolition of Taxation of Income Received by Nonresidents in the Form of Payment for Production and / or Distribution of Advertisements and Improvement of Value Added Tax Procedure for Transactions on Supply of Electronic Services to Individuals by Nonresidents” № 4184 of 02.10.2020 (hereinafter - the draft Law)}