On June 3, 2021, on the second reading, the Verkhovna Rada adopted a bill №4184 regarding imposing VAT (20% tax) on digital services delivered by non-resident companies. That means that foreign companies, such as Facebook, Netflix, Steam, Apple and Amazon will have to pay a 20% tax on their online services used by Ukrainians after the draft law is signed and published.

The document supplements Article 208 (on the taxation of services delivered by non-resident companies in Ukraine) of the Tax Code with the regulation on taxation of electronic services. According to the text of this article, electronic services that non-resident companies supply to individuals in Ukraine are subject to VAT (20%).

“A non-resident company is a company that does not have a permanent representative office in the country. It must register in the Ukrainian tax office as a VAT payer to provide services to Ukrainians.”

At the same time, the “tax on foreign advertising” rule is excluded from the code. That means that Ukrainian legal entities and individual entrepreneurs will not have to pay a 20% tax when buying electronic services from foreign companies.

Previously, one of the authors of this initiative Danylo Hetmantsev, Chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, published an infographic on Telegram on how the regulations of this draft law would work. In particular, it contains data on which services will be considered electronic and which will not (in the first case, a 20% tax, which is adopted by this bill, is applied).

What types of services will be considered electronic?

  • Downloading movies, books, magazines;
  • access to the databases;
  • access to the television channels;
  • access to the electronic resources;
  • distance learning services;
  • cloud services;
  • software delivery;
  • providing advertising services on the internet.

What types of services will not be considered electronic?

  • Car rental services;
  • products delivery services;
  • passenger transport services;
  • distance learning services between teacher and student;
  • providing consulting services via email;
  • internet access services.

Previously, we wrote about what is wrong with this initiative. In a nutshell: it would mean a 20% increase in the price of services for users.