Draft Law on Amendments to the Tax Code Regarding Individual Entrepreneurs, Sales through Digital Platforms and Taxation of International Shipments Published

On March 19, the Ministry of Finance of Ukraine published the text of the Draft Law “On Amendments to the Tax Code of Ukraine and the Law of Ukraine “On Banks and Banking Activities” Regarding the Implementation of International Automatic Exchange of Information on Income Received through Digital Platforms, Taxation of E-commerce Transactions and Ensuring Equality of Taxpayers in Taxation with Value-Added Tax”. Some of the innovations will come into force on July 1, 2027.

The Draft Law was developed with the aim of:

◎ ensuring that Ukraine carries out international automatic exchange of information on income received through digital platforms;

◎ improving e-commerce transactions taxation and certain issues of value-added tax administration;

◎ harmonizing national tax legislation with OECD law to facilitate the fulfillment of Ukraine’s international obligations as a candidate country for membership in the EU and OECD.

The future Law is aimed at implementing the provisions of the OECD Model Rules on Reporting by Digital Platform Operators and provisions of the DAC 7 Directive of 22 March 2021, as well as the provisions of Council Directive (EU) 2006/112/EC on the VAT common system.

Taxation of Income Received through Digital Platforms

The introduction of international automatic exchange of information on income received through digital platforms is envisaged within the framework of Ukraine’s cooperation with the IMF and will be regulated by the Multilateral Agreement of Competent Authorities on the Automatic Exchange of Information on Income Received through Digital Platforms.

The State Tax Service of Ukraine will receive from the competent authorities of foreign jurisdictions that are parties to this agreement information on income received by residents of Ukraine through digital platform operators registered in such jurisdictions annually, and in turn will send similar information about their residents to the exchange partners.

It is proposed to set a tax rate of 5% for income received through digital platforms (currently this segment is taxed by the personal income tax at 18%) and to impose the duties of a tax agent on accountable platform operators.

VAT Rules for Single Tax Payers

Mandatory registration of business entities on the simplified taxation system as VAT payers after they reach the established threshold (which will be increased from 1 million to 4 million UAH) will be introduced. The reporting period for VAT payers who pay the single tax is a calendar quarter.

If single tax payers registered as VAT payers violate the deadlines for registering tax invoices/adjustment calculations, it is proposed to establish a fine of UAH 1 for the first five such violations.

Establishment of a Permanent Military Levy

The obligation to pay military levy will continue to apply until the decision of the Verkhovna Rada of Ukraine on the completion of the reform of the Armed Forces of Ukraine enters into force:

◎ for individuals – in the amount of 5%;

◎ for individual entrepreneurs – single tax payers of Groups 1, 2 and 4 – 10% based on one minimum wage on the first day of the current month;

◎ for single tax payers of Group 3 (individual entrepreneurs and legal entities) (except for electronic residents (e-residents) – 1% of income.

Improvement of VAT Administration in Electronic Commerce

It is proposed to:

◎ establish an obligation for an electronic interface enterprise – a non-resident to keep records of distance sales of goods;

◎ establish that the person responsible for calculating and paying VAT to the budget in the event of carrying out activities in accordance with the rules for distance sales of goods is the electronic interface enterprise.

The following categories are proposed to be added to Article 197 of the Tax Code of Ukraine on exemption from VAT of import transactions into the customs territory of Ukraine:

◎ goods purchased in accordance with the rules for distance sales of goods, to the address of the individual recipient (to avoid double taxation of transactions on distance sales of goods);

◎ goods the total invoice value of which does not exceed the equivalent of EUR 45, for one recipient – natural person from one sender – natural person in international postal items or in one express carrier shipment from one sender – natural person in international express shipments.

Draft law