“Google tax law” is the simple informal name of the Law on the Amendments to the Tax Code of Ukraine Regarding Abolition of Taxation of Revenues Received by Non-Residents from Production and/or Distribution of Advertising and Improvement of Value Added Tax Administration Procedures as it Pertains to the Operations on Electronic Services Provision to Individuals by Non-Residents (hereinafter – the law).
The law entered into force on July 2, 2021.
The law will apply to foreign companies from January 1, 2022. Foreign entities that will meet VAT registration criteria in 2021 must register as VAT payers until March 31, 2022 through the application Diia (https://diia.gov.ua).
Which foreign companies will pay VAT in Ukraine?
According to the Law, the Ukraine will tax foreign companies, which do not have permanent establishment in Ukraine and sell electronic services to Ukrainian individuals and private entrepreneurs, who are not payers of VAT, for total amount exceeding UAH 1 million per year. Such foreign companies must get registered and pay 20% VAT from revenue generated in Ukraine as defined above.
Electronic services include provision of access to electronic services through the electronic interface, providing technical, organizational, informational and other opportunities by means of information technology and systems, establishing contacts and agreements between sellers and buyers and / or provides of such electronic services under intermediary agreements under its own name, but on behalf of the electronic service provider.
The following foreign companies will be exempt from tax:
- Those supplying electronic services under intermediary agreements, if the invoices (receipts) provided to customers of electronic services specify the list of such electronic services and their actual supplier;
- Those carrying out exclusively processing of payments for electronic services and do not participate in the provision of such electronic services;
- Those providing electronic services directly through their permanent establishment in Ukraine.
What are electronic services
Electronic services (taxable) according to the Law are the services provided via the Internet and are automated, using information technology and preferably without human intervention, including by installing a special application or application on smartphones, tablets, TV sets or other digital devices. Such services, in particular but not limited to, include:
a) providing electronic copies, providing access to images, texts and information, including but not limited to, subscription to electronic newspapers, magazines, books, providing access to and / or uploading photographs, graphics, videos;
b) providing access to databases, including the use of search engines and directory services on the Internet;
c) supply of electronic copies (electronic-digital information) and / or provision of access to audiovisual works, video and audio works to order, games, including provision of services for participation in such games, provision of services for access to television programs (channels) or their packages, except for access to television programs simultaneously with their broadcasting through a television network;
d) providing access to information, commercial, entertainment electronic resources and other similar resources, in particular but not exclusively, hosted on platforms for sharing access to information or video materials;
e) the provision of distance learning services on the Internet, provision of which does not require human participation, including by providing access to virtual classrooms, educational resources in which students complete tasks online and get grades automatically, without human participation (or with marginal participation);
e) provision of cloud services as it pertains to providing computing resources, storage resources or electronic communications systems using cloud computing technologies;
f) supply of software and updates to it, including electronic copies, providing access to them, as well as remote maintenance of software and electronic equipment;
g) provision of advertising services on the Internet, mobile applications and other electronic resources, provision of advertising space, including by placing banner advertising messages on websites, web pages or web portals.
Services exempt from taxation
For the purposes of taxation, the following operations shall not be considered as electronic services:
- supply of goods / services, ordering (booking) of which is carried out via the Internet, using mobile applications and other electronic means, and the actual supply is carried out without the use of the Internet (in particular, accommodation services, car rental, catering services, passenger services and other similar services);
- supply of goods and / or other services, other than electronic services, which include electronic services, if the cost of electronic services is 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 channel of communication between teachers and students;
- supply of copies of works in the field of science, literature and art on physical storage medea;
- providing consulting services by e-mail;
- providing access to the Internet.
How would controlling bodies define that a foreign entity generates revenue from electronic services in Ukraine?
According to the law, origination of Internet traffic or customer equipment location will serve as a criterion, based on which the services will be considered as those consumed in Ukraine. Internet traffic will be considered as originated in Ukraine, if a customer uses local Internet providers’ services (fixed-line or mobile carriers). If Internet connection was established with the use of access card or similar media, location of the customer equipment will be considered (for example, IP address).
Additionally, customers of electronic services will be identified by their payment address, bank details and other commercially important information.
Procedure for registration of a foreign company that supplies electronic services as a VAT payer
The law provides for a simplified registration procedure by submitting an application in electronic form.
Such an application shall be submitted by 31 March of the relevant calendar year following the year in which a foreign company has exceeded the amount equivalent to UAH 1000000.
A foreign company that has not exceeded this amount, but considers it appropriate to register voluntarily as a taxpayer, may apply for registration not later than 10 calendar days before the beginning of the reporting (tax) period from which such foreign company will be regarded as a taxpayer.
The application shall be submitted to the State Fiscal Service of Ukraine (SFS of Ukraine) in electronic form through a special portal solution for foreign company users that provide electronic services by means of electronic identification.
Documents to be submitted for registration:
- application for registration as a taxpayer (the application form is approved in the Ukrainian and English languages by the SFS of Ukraine).
- copy of an excerpt from a relevant business register (commercial, banking or other register that establishes the fact of state registration of a company or organisation) issued in the country of registration of a foreign company,
- document confirming the assignment of identification (registration, accounting) number (code) of a foreign company in the country of its registration, if the extract from the respective business register does not contain information on such number (code),
The application shall contain information on:
- registration of a foreign company in the foreign company’s country of residence,
- foreign company identification data, will be subject to electronic identification,
- details of its representative,
- electronic address,
- bases for registration,
- information on confirmation of the fact and period of reaching the amount exceeding UAH 1000000, as well as foreign currency (EUR or USD) in which the foreign company will pay the tax.
The deadline for making a decision on registration as a VAT payer is 3 working days after receipt of the application.
Registration of a foreign company as a taxpayer and interaction with the controlling authority is carried out by means of electronic identification using a domain name of a foreign company and/or, using other permitted technologies for electronic identification of a taxpayer.
The procedure of electronic identification is approved by the SFS of Ukraine, its official translation into English is placed on a special portal solution for foreign company users that supplies electronic services.