No matter where you live or where your online business is based — if you have customers in Ukraine, you gotta follow Ukrainian VAT rules. That’s what this guide is for! This guide includes everything you need to know about digital tax laws in Ukraine, whether your customers live in Odessa or Volyn.
First let’s confirm what you’re trying to sell in Ukraine. Are you selling digital products?
A digital product is any product that’s stored, delivered, and used in an electronic format. These are goods or services that the customer receives via email, by downloading them from the Internet, or through logging into a website.
But some countries can have more specific definitions or exceptions.
You’re probably consuming and using digital products all day long, whether or not you realize it. Here are some common ones on the market today:
- E-books, images, movies, and videos, whether buying a copy from Shopify or using a service like Netflix. In tax language, these products are in a category usually called, “Audio, visual, or audio-visual products.”
- Downloadable and streaming music, whether buying an MP3 or using a service like SoundCloud or Spotify. Of course, these products also fall in the audio category.
- Cloud-based software and as-a-Service products, such as Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS).
- Websites, site hosting services, and internet service providers.
- Online ads and affiliate marketing. Income from these services can be considered taxable under digital tax policies.
Heads up: you might also hear digital goods referred to as “digital services,” “e-goods”, or “e-services.” All of these terms refer to the same thing.
Not sure if what you sell is considered a “digital product?” Check out our explanation of what a digital product is exactly.
Ukraine’s VAT for digital products
VAT is the consumption tax throughout Ukraine, levied on almost everything sold in the country. There are specific rules around digital products, which you must follow closely to stay tax compliant.
If you sell digital products to a customer in Ukraine, you must charge the VAT rate. Simple, right?
It’s simple in theory. But in practice, Ukraine VAT has a bit more complexity. You don’t necessarily need to add tax to every sale. It can depend on the amount of sales you make in the country, whether the sale is B2B or B2C, and other things. We’ll go into more detail about each of these throughout the rest of the guide!
Registering for Ukraine’s VAT
Is there a sales registration threshold?
Yes, Ukraine has an annual sales registration threshold of UAH 1,000,000.
What does this mean exactly?
Well, the threshold amount refers to your total sales in the country, during any 12-month period. This can be a calculation of sales in the last twelve months, or a prediction of sales in the next twelve months — any rolling year-long period, past or future.
If your total sales in Ukraine remains below 1,000,000 UAH, then you don’t need to worry about VAT at all. Phew!
But once your sales do surpass 1,000,000 UAH, then you must register for VAT and comply with all of the Ukrainian rules around tax rate and collection, invoices, and filing returns.
The registration process
So, turns out you do need to register for tax in Ukraine. Don’t worry! Just follow these instructions from the Ukrainian tax authority on how to register for Ukrainian VAT.
Ultimately, you will receive a VAT registration number, which establishes you in the Ukrainian tax system as a legal business. This number tracks your business through the system: the taxes you pay, the tax credits you receive, plus the tax you charge from customers.
Do you need a local tax representative?
No, you don’t need a representative to handle your taxes in Ukraine. That is, you aren’t required to have one. Some tentative foreign business owners may hire a tax representative for peace of mind. Taxes can be an intimidating and confusing topic, especially in a foreign language! Makes absolute sense.
But because the Ukrainian tax portal is available online, it’s possible for you to handle these foreign taxes on your own. It’s just up to you!
Collecting VAT in Ukraine
If you sell B2C
Once you’re registered for taxes, you’re expected to charge 20% VAT on every sale to a Ukrainian resident.
If you sell B2B
If your customer is a fellow business, and they’ve provided a valid VAT number, then adding and collecting tax isn’t necessary! The buyer will handle tax, via Ukraine’s reverse-charge mechanism.
But if you use an accounting/tax software, you can manage your settings so that these regions are always free from VAT. In Quaderno, we automatically exempt non-taxable zones, so no checkouts are presented (and no invoices sent) that request the wrong amount.
VAT invoices in Ukraine
In order to comply with tax laws, you should include the following information on your invoices to customers in Ukraine:
- Your business’ name and address
- Your business’ VAT registration number
- Invoice date
- Invoice sequencing number
- Buyer’s name and address
- Buyer’s VAT registration number, if they have one.
- VAT (amount and rate) applied to each item
- Final amount after tax is added
- The currency used
The easiest solution for the VAT invoice would be to use a tax software that automatically generates and sends all invoices (as soon as the sale is complete), and also stores them in the cloud for you. Quaderno does just that, but we won’t go on about it here. :)
Filing VAT returns in Ukraine
Charging and collecting tax is only the first half of staying compliant. The second, and equally important, half is filing returns and paying whatever you might owe to the government.