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To VAT or not to VAT. Another one attempt of the Government of Ukraine to oblige non-residents to pay VAT for provision of electronic services

12/ 11/ 2020
  Authors: Igor Pugaiko,  Counsel at Hillmont Partners, Head of the Administrative andTax Law Practice; Olga Shkilniuk, Junior Associate at Hillmont Partners Download in pdf The fate of Draft Law No. 2634 of 19.12.2019 has not yet been decided (see the article Collection of VAT from non-residents for provision of electronic services in Ukraine). However, the Verkhovna Rada registered another Draft Law “On Amendments to the Tax Code of Ukraine to Abolish Taxation of Income Received by Non-Residents in the Form of Payment for Production and/or Distribution of Advertising and Improvement of the Taxation Procedure by Value Added Tax of Electronic Services Provided to Individuals by Non-Residents № 4184 of 02.10.2020 (hereinafter – the Draft Law № 4184). Its main provisions are very similar to Draft Law No. 2634 of December 19, 2019 (hereinafter – Draft Law No. 2634). Both draft laws are aimed at increasing state budget revenues through taxation with a value added tax imposed on electronic services provided by non-residents in the customs territory of Ukraine. Moreover, it is expected that they will contribute to the creation of conditions for the efficient administration of tax payment procedures. We have analyzed the differences between the two draft laws. Despite the fact that some provisions are indeed proposed to be changed or supplemented, there are no fundamentally new provisions in Draft Law No. 4184. What exactly is proposed to change in accordance with the Draft Law No. 4184 – we explain below. 1) The fine amount for the activity of a non-resident on the territory of Ukraine without registration as a VAT payer has been changed The Draft Law No.2634 The Draft Law No. 4184 Carrying out activities for supply of electronic services to individuals by a non-resident in the customs territory of Ukraine without registering as a VAT payer is punishable by a fine of UAH 8500. Carrying out activities relating to the supply of electronic services to individuals by a non-resident in the customs territory of Ukraine without registering as a VAT payer is punishable by a fine imposed on the non-resident in the amount of 100 percent of the cost of the provided electronic services. 2) The content of the provision on non-residents who are recognized as taxpayers has been supplemented The Draft Law No.2634 The Draft Law No. 4184 9) A non-resident who provides electronic services to individuals located in the customs territory of Ukraine, or who is an intermediary in transactions for the supply of such services. 9) A non-resident who does not have a permanent establishment and who provides electronic services to individuals, the place of provision of which is located in the customs territory of Ukraine. 3) The deadline for filing an application for registration of non-residents as taxpayers has been changed The Draft Law No.2634 The Draft Law No. 4184 The application is submitted to the central executive body which implements state tax policy until January 31 inclusive of the relevant calendar year following the year in which the total sum of transactions for the supply of electronic services to individuals by such non-residents exceeds the established equivalent of UAH 1 million. The application is submitted to the central executive body which implements state tax policy until March 31 inclusive of the relevant calendar year following the year in which the total sum of transactions for the supply of electronic services to individuals by such non-residents exceeds the established equivalent of UAH 1 million. 4) The provision on the registration of non-residents as taxpayers has been supplemented in the areas of the date from which a non-resident is considered registered as a taxpayer and the deadlines for notification of any changes in accounting records  Draft Law No.2634  Draft Law No. 4184 A non-resident is considered to be registered as a taxpayer from January 1 of the year following the year in which the non-resident submitted an application for registration as a taxpayer. If there are any changes in the registration information of a non-resident, they must inform about the changes in the electronic service “VAT for non-residents”. A non-resident is considered to be registered as a taxpayer from the date of entry in the register of taxpayers in case of mandatory registration of a person as a taxpayer or from the first day of the reporting (tax) period following the expiration of 10 calendar days after submission to the central executive body which implements state tax policy and applications for registration, in the case of voluntary registration. If there are any changes in the registration information of a non-resident, they must inform about the changes in the electronic service “VAT for non-residents” by submitting an application for re-registration within 10 working days of the day when the taxpayer data changed. 5) The list of grounds for cancellation of registration of a non-resident as a taxpayer has been expanded The Draft Law No.2634 The Draft Law No. 4184 Cancellation of a non-resident’s registration as a tax payer can be carried out on the basis of: 1) applications for cancellation of registration as a taxpayer; 2) a decision of the central executive body implementing the state tax policy, if a non-resident does not submit simplified tax returns to the supervisory bodyfor four consecutive reporting (tax) periods and/or submits  declarations which indicate the absence of electronic service provision. Cancellation of a non-resident registration as a tax payer is carried out on the basis of: 1) applications for cancellation of registration as a taxpayer; 2) decision of the central executive body implementing the state tax policy, if: а) a non-resident does not submit simplified tax returns to the supervisory body for four consecutive reporting (tax) periods and / or submits such declarations that indicate the absence of electronic services provision. b) activities of a non-resident in the country of registration of a non-resident has been terminated or liquidated; c) the constituent documents of a non-resident are declared invalid. 6) The date from which the non-resident’s registration as taxpayer is cancelled has been changed  Draft Law No.2634 Draft Law No. 4184 Cancellation of registration of a non-resident as a taxpayer occurs from the first day of the reporting (tax) period following the reporting (tax) period in which the application is submitted or decision of the central executive body implementing  state tax policy is made. Cancellation of registration of a non-resident as a taxpayer occurs on the last day of the reporting period in which the application for cancellation of registration is submitted, the decision of the central executive body implementing the state tax policy is made, or from the date of termination of the non-resident’s activity in the non-resident’s country. 7) The approach to setting the date of the last reporting (tax) period in connection with the cancellation of the registration of a non-resident as a taxpayer has been changed The Draft Law No.2634 The Draft Law No. 4184 The last reporting (tax) period is the period beginning on the first day of the quarter in which the registration of a non-resident as a taxpayer is canceled and ending on the day preceding the day of cancellation of registration as a non-resident taxpayer. The last reporting (tax) period is the period beginning on the first day of the quarter in which the registration of a non-resident as a taxpayer is canceled and ending on the day of cancellation of registration as a non-resident taxpayer. 8) The provisions on specifics of VAT collection in terms of period of income received by a non-resident and deadline for registration as a taxpayer have been changed  Draft Law No.2634  Draft Law No. 4184 71. A non-resident whose total supply of electronic services to individuals who are  located in the customs territory of Ukraine, for the 2019 calendar year in total exceeds a value of UAH 1 million, until January 31, 2020 inclusively, must submit an application for registration as a taxpayer. 75. A non-resident whose total supply of electronic services to individuals who are located in the customs territory of Ukraine, for the 2021 calendar year in total exceeds UAH 1 million, until March 31, 2022 inclusively, must submit an application for registration as a taxpayer.

Authors: Igor Pugaiko,  Counsel at Hillmont Partners, Head of the Administrative andTax Law Practice; Olga Shkilniuk, Junior Associate at Hillmont Partners

Download in pdf

The fate of Draft Law No. 2634 of 19.12.2019 has not yet been decided (see the article Collection of VAT from non-residents for provision of electronic services in Ukraine). However, the Verkhovna Rada registered another Draft Law “On Amendments to the Tax Code of Ukraine to Abolish Taxation of Income Received by Non-Residents in the Form of Payment for Production and/or Distribution of Advertising and Improvement of the Taxation Procedure by Value Added Tax of Electronic Services Provided to Individuals by Non-Residents № 4184 of 02.10.2020 (hereinafter – the Draft Law № 4184).

Its main provisions are very similar to Draft Law No. 2634 of December 19, 2019 (hereinafter – Draft Law No. 2634). Both draft laws are aimed at increasing state budget revenues through taxation with a value added tax imposed on electronic services provided by non-residents in the customs territory of Ukraine. Moreover, it is expected that they will contribute to the creation of conditions for the efficient administration of tax payment procedures.

We have analyzed the differences between the two draft laws. Despite the fact that some provisions are indeed proposed to be changed or supplemented, there are no fundamentally new provisions in Draft Law No. 4184. What exactly is proposed to change in accordance with the Draft Law No. 4184 – we explain below.

1) The fine amount for the activity of a non-resident on the territory of Ukraine without registration as a VAT payer has been changed

The Draft Law No.2634 The Draft Law No. 4184
Carrying out activities for supply of electronic services to individuals by a non-resident in the customs territory of Ukraine without registering as a VAT payer is punishable by a fine of UAH 8500. Carrying out activities relating to the supply of electronic services to individuals by a non-resident in the customs territory of Ukraine without registering as a VAT payer is punishable by a fine imposed on the non-resident in the amount of 100 percent of the cost of the provided electronic services.

2) The content of the provision on non-residents who are recognized as taxpayers has been supplemented

The Draft Law No.2634 The Draft Law No. 4184
9) A non-resident who provides electronic services to individuals located in the customs territory of Ukraine, or who is an intermediary in transactions for the supply of such services. 9) A non-resident who does not have a permanent establishment and who provides electronic services to individuals, the place of provision of which is located in the customs territory of Ukraine.

3) The deadline for filing an application for registration of non-residents as taxpayers has been changed

The Draft Law No.2634 The Draft Law No. 4184
The application is submitted to the central executive body which implements state tax policy until January 31 inclusive of the relevant calendar year following the year in which the total sum of transactions for the supply of electronic services to individuals by such non-residents exceeds the established equivalent of UAH 1 million. The application is submitted to the central executive body which implements state tax policy until March 31 inclusive of the relevant calendar year following the year in which the total sum of transactions for the supply of electronic services to individuals by such non-residents exceeds the established equivalent of UAH 1 million.

4) The provision on the registration of non-residents as taxpayers has been supplemented in the areas of the date from which a non-resident is considered registered as a taxpayer and the deadlines for notification of any changes in accounting records

 Draft Law No.2634  Draft Law No. 4184
A non-resident is considered to be registered as a taxpayer from January 1 of the year following the year in which the non-resident submitted an application for registration as a taxpayer.
If there are any changes in the registration information of a non-resident, they must inform about the changes in the electronic service “VAT for non-residents”.
A non-resident is considered to be registered as a taxpayer from the date of entry in the register of taxpayers in case of mandatory registration of a person as a taxpayer or from the first day of the reporting (tax) period following the expiration of 10 calendar days after submission to the central executive body which implements state tax policy and applications for registration, in the case of voluntary registration.
If there are any changes in the registration information of a non-resident, they must inform about the changes in the electronic service “VAT for non-residents” by submitting an application for re-registration within 10 working days of the day when the taxpayer data changed.

5) The list of grounds for cancellation of registration of a non-resident as a taxpayer has been expanded

The Draft Law No.2634 The Draft Law No. 4184
Cancellation of a non-resident’s registration as a tax payer can be carried out on the basis of:
1) applications for cancellation of registration as a taxpayer;
2) a decision of the central executive body implementing the state tax policy, if a non-resident does not submit simplified tax returns to the supervisory bodyfor four consecutive reporting (tax) periods and/or submits  declarations which indicate the absence of electronic service provision.
Cancellation of a non-resident registration as a tax payer is carried out on the basis of:
1) applications for cancellation of registration as a taxpayer;
2) decision of the central executive body implementing the state tax policy, if:
а) a non-resident does not submit simplified tax returns to the supervisory body for four consecutive reporting (tax) periods and / or submits such declarations that indicate the absence of electronic services provision.
b) activities of a non-resident in the country of registration of a non-resident has been terminated or liquidated;
c) the constituent documents of a non-resident are declared invalid.

6) The date from which the non-resident’s registration as taxpayer is cancelled has been changed

 Draft Law No.2634 Draft Law No. 4184
Cancellation of registration of a non-resident as a taxpayer occurs from the first day of the reporting (tax) period following the reporting (tax) period in which the application is submitted or decision of the central executive body implementing  state tax policy is made. Cancellation of registration of a non-resident as a taxpayer occurs on the last day of the reporting period in which the application for cancellation of registration is submitted, the decision of the central executive body implementing the state tax policy is made, or from the date of termination of the non-resident’s activity in the non-resident’s country.

7) The approach to setting the date of the last reporting (tax) period in connection with the cancellation of the registration of a non-resident as a taxpayer has been changed

The Draft Law No.2634 The Draft Law No. 4184
The last reporting (tax) period is the period beginning on the first day of the quarter in which the registration of a non-resident as a taxpayer is canceled and ending on the day preceding the day of cancellation of registration as a non-resident taxpayer. The last reporting (tax) period is the period beginning on the first day of the quarter in which the registration of a non-resident as a taxpayer is canceled and ending on the day of cancellation of registration as a non-resident taxpayer.

8) The provisions on specifics of VAT collection in terms of period of income received by a non-resident and deadline for registration as a taxpayer have been changed

 Draft Law No.2634  Draft Law No. 4184
71. A non-resident whose total supply of electronic services to individuals who are  located in the customs territory of Ukraine, for the 2019 calendar year in total exceeds a value of UAH 1 million, until January 31, 2020 inclusively, must submit an application for registration as a taxpayer. 75. A non-resident whose total supply of electronic services to individuals who are located in the customs territory of Ukraine, for the 2021 calendar year in total exceeds UAH 1 million, until March 31, 2022 inclusively, must submit an application for registration as a taxpayer.

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