Ukraine passes “Google tax” law impacting non-resident digital service providers

When the bill enters into force, affected non-resident companies will have to file a simplified value added tax (VAT) declaration and transmit the VAT due from the digital services provided in Ukraine.

Under previous law, the non-resident companies’ clients in Ukraine were required to calculate and transmit the 20% VAT from the advertising services purchased from the non-resident.

Who must register as a VAT payer?

The mandatory VAT registration applies to non-residents that provide digital services listed in the bill in Ukraine when the value of the services provided in Ukraine exceeds the equivalent of 1 million UAH (USD 36,500).

The rules on VAT registration for non-residents apply only in cases where the non-resident has no permanent establishment in Ukraine through which it provides such electronic services.  

What happens if a non-resident fails to register?

If a non-resident meets the criteria set out above but does not register as a VAT payer in Ukraine, it will be subject to a fine in the amount of 100% of the value of services provided in Ukraine. The Ukrainian tax authority will also calculate the amount of unpaid VAT due from such non-resident, and, on top of that, apply a fine in the amount of 20% of the amount of unpaid VAT plus interest.

Technical aspects of non-resident registration

For purposes of the bill, a special online platform will be designed for VAT registration by non-residents. Thus, a non-resident will be able to submit all the necessary documents to the Ukrainian tax authority online. This platform will also be used to file a simplified VAT declaration.

The bill also provides that the Ukrainian tax authority will communicate with the non-residents who registered as VAT payers in Ukraine by means of notices sent via this online platform. A VAT registered non-resident will receive online notices regarding a failure to file a simplified VAT declaration or pay the VAT due, or about other violations of the Ukrainian tax law.

For unregistered non-residents, the same notices will be communicated to the responsible state authorities in the non-resident’s home country with the view to inform such non-resident about its obligation to register with the Ukrainian tax authorities.

These notices – both the online notice for registered non-residents and the notices for unregistered non-residents communicated to the state authorities – will be filed both in Ukrainian and English.

A non-resident will have a period of 90 days to pay the VAT due, which will be calculated in the notice prepared by the Ukrainian tax authorities. The VAT obligation may be paid in foreign currency, but will be re-calculated into Ukrainian hryvnia automatically, based on the relevant exchange rate applicable on the day of payment.

Next steps

The bill was transmitted to the President for signing and will enter into force on the day following the day of its official publication. All the necessary legal acts for the implementation and functioning of the VAT system for non-residents shall be adopted within six months following the entry into force of the bill. 

Non-residents should analyze their activities to determine whether they may be subject to mandatory VAT registration or if there are any possible legal ways to avoid being subject to the registration requirement.