From January 1, 2022, VAT on electronic services from non-residents is introduced

From January 1, 2022, 20% VAT on electronic services from non-residents is introduced in Ukraine and the 20% remittance tax on payments to non-residents for the production and/or distribution of advertisements is abolished

Yesterday, on June 3, 2021, the Verkhovna Rada of Ukraine adopted a Law¹, according to which from January 1, 2022, non-resident suppliers are required to assess 20% VAT on the supply of electronic services in Ukraine, if:

• electronic services are supplied to individuals (including entrepreneurs - non-payers of VAT)
• the supplier's income from these operations during the calendar year (starting from 2021) exceeds UAH 1 million.

The definition of "electronic services" to be VATable and the list of exceptions have been supplemented and expanded in comparison with the wording of the Law adopted in the first reading (which we commented on in our tax and legal review of 22 February 2021). As a result, the Law does not establish an exhaustive list of electronic services that are subject to VAT.

Electronic services, in particular, but not exclusively, include:

• providing access, including subscriptions, to electronic newspapers, magazines, books, uploading photos, graphics, videos
• providing access to databases, including the use of search engines and directory services on the Internet
• providing access to audiovisual works, video and audio works to order, games, participation in such games, access to television programs (channels) or their packages, except for access to television programs simultaneously with their broadcasting through a television network
• distance learning services via the Internet, the conduct and provision of which does not require human participation
• providing computing resources, storage resources or electronic communications systems using cloud computing technologies
• supply of software and updates to it, including electronic copies, providing access to them, as well as remote maintenance of software and electronic equipment
• provision of advertising services.

However, electronic services do not include the following operations:

• provision of services ordered via the Internet, when the actual supply is made offline
• supply of goods and / or other services, which include electronic services, that are included in the total cost of such goods / services
• provision of distance learning services on the Internet, if the Internet is used exclusively as a means of communication between teacher and student
• supply of copies of works in the field of science, literature and art on tangible media
• providing consulting services by e-mail
• provision of Internet access services.

Non-resident companies that meet the requirements of the Law are required to submit an application for registration as a VAT payer by March 31, 2022. It is assumed that non-residents will file a simplified quarterly tax return in electronic form and pay tax in foreign currency.

In addition, starting from 1 January 2022:

• the remittance tax on payments to non-residents for the production and/or distribution of advertisements which is paid at a 20% rate is abolished
• VAT exemption shall apply to the provision of distance learning services within the framework of higher, secondary, vocational and preschool education.

The PwC Ukraine team is ready to share our observations of the effect these legislative novelties might have on your business.

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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 Law)}