Ukraine introduces VAT on the sales of electronic services supplied by non-residents from Jan. 1, 2022

Ukraine’s Ministry of Finance issued an Order No. 637 modifying the registration requirements for VAT payers (Order No. 1130 from November 14, 2014). Accordingly to the new decree, non-resident suppliers making sales of the business-to-consumer (B2C) electronic services to the Ukrainian individuals (i.e., customers who are not legal entities or VAT-registered private entrepreneurs) are required to register in Ukraine for VAT purposes starting from January 1, 2022.  

Businesses supplying software products including:

• the provision of access to online services;
• the provision of updates, modifications, additions;
• or expansions to the software;

– are subject to a temporary VAT exemption until  January 1, 2023. 

Electronic Services
According to Ukrainian law, electronic services are those that are delivered automatically via the Internet, using information technologies and no human intervention. Among the electronic services available are the following: 

• Provision of electronic copies, access to images, texts, and information, including subscriptions to electronic newspapers, magazines, and books, as well as the downloading of photographs, graphic images, and videos
• Access to databases, which may include the usage of search engines and directory services
• Provision of audiovisual works, on-demand videos, games, and card games, as well as provision of services for participation in such games
• Access to electronic information, commercial, educational, and entertainment resources, as well as other similar resources
• Online education services without human intervention
• Cloud technology for data storage and placement
• Transfer of rights of use of software and updates, as well as remote maintenance of software and electronic equipment
• Online advertising, mobile apps, and other technological tools

VAT Obligations 

According to Ukrainian VAT law, suppliers of electronic services or intermediates (for example, online marketplaces) are subject to VAT registration and compliance duties which vary based on the specific contract arrangements. The registration threshold is 1 million UAH  (approximately 30,000 EUR ) in the previous calendar year. VAT-registered suppliers are required to charge VAT at the standard rate of 20% on the contractual value of the services. 

The supplies of electronic services by non-residents to Ukrainian firms and individual entrepreneurs registered as VAT payers in Ukraine, will be exempt from the application of the new VAT regulations. Under the reverse-charge mechanism, such services should be charged on the part of the Ukrainian receivers. 

Penalties 

Non-registration or failing to register on time will be in the amount of 30 minimum wages in effect as of the first day of January of the reporting year (since 1 January 2022, UAH 195 thousand, or EUR 6,100). 

• Less than 30 days after the payment deadline –  

Unintentional late payment, partial payment, or non-payment of VAT obligations within 30 days after the payment deadline results in an administrative penalty of 5% of the the VAT due. 

• More than 30 days after the payment deadline –  

VAT obligations that are paid, partially paid, or not paid at all for more than 30 days beyond the payment deadline will be subject to an administrative penalty of 10% of the VAT due. 

A penalty of 25% of the total amount of unpaid, partly unpaid or prematurely paid tax obligations is levied against those who intentionally pay their VAT duties late, partially late or not at all.  If the same violation is committed again within 1095 days or the violation resulted in a payment delay of more than 90 days, an administrative penalty of 50% of unpaid, partly underpaid or late paid VAT obligations will be imposed. 

If you are selling services to Ukrainian customers online, we strongly advise you to conduct a thorough analysis of your transactions from the Ukrainian VAT standpoint to ensure complete compliance with the law. Our team of VAT experts can provide guidance on electronic services taxation, VAT registration, and VAT reporting. 

Source: ligazakon.ua

Follow us on LinkedIn to keep up with the latest VAT news