The Ukrainian company ordered Internet advertising services from a contractor not registered in Ukraine. How can such services be correctly reflected in the accounting and what taxes must be paid on time not to incur fines from the controllers?
VAT consequences
Value added tax taxation (hereinafter – VAT) of the supply operation by a non-resident who does not have a permanent representative office in Ukraine of advertising services on the Internet, mobile applications and other electronic resources to a resident legal entity has its own specifics that should be taken into account.
The object of VAT taxation is the operations of taxpayers, in particular, for the supply of services, the place of supply of which is located in the customs territory of Ukraine, in accordance with art. 186 of the Tax Code of Ukraine (hereinafter – the Tax Code) (paragraph ‘b’ of item 185.1 of the Tax Code). According to point ‘b’ item 186.3 of the Tax Code, the place of supply of advertising services is considered to be the place where the recipient of services is registered as a business entity or – in the absence of such – the place of permanent or primary residence.
In accordance with item 180.2 of the Tax Code, the person responsible for charging and paying tax to the budget in the case of the supply of services by non-residents, including their permanent representative offices, not registered as taxpayers, if the place of supply of services is located in the customs territory of Ukraine, is the recipient of services, except for the cases established by Art.2081 of the Tax Code.
The recipient of services supplied by non-residents, the place of supply of which is located in the customs territory of Ukraine, charges tax at the basic tax rate or at the rate of 7% for services specified in para. 4-6 point ‘c’ item 193.1 of the Tax Code, on the tax base determined in accordance with item 190.2 of the Tax Code.
At the same time, the recipient of services is a tax payer in accordance with the procedure specified in Art. 201 of the Tax Code, draws up a tax invoice indicating the amount of tax charged, which is the basis for assigning tax amounts to the tax credit in the prescribed manner. Such a tax invoice is subject to mandatory registration in the Unified Register of Tax Invoices (item 208.2 of the Tax Code).
If the recipient of services is registered as a tax payer, the amount of accrued tax is included in the tax liability of the declaration for the relevant reporting period (item 208.3 of the Tax Code).
If the recipient of services is not registered as a tax payer, then a tax invoice is not drawn up. The form for calculating the tax liability of such a recipient of services is approved by the central executive body, which ensures the formation and implementation of the state financial policy (item 208.4 of the Tax Code).
The recipient of services is equated to a taxpayer for the purposes of applying the rules of Part V of the Tax Code regarding payment of tax, collection of tax debt and prosecution for offenses in the field of taxation (item 208.5 of the Tax Code)
Therefore, transactions involving the supply of advertising services by a non-resident person who does not have a permanent representative office to a resident legal entity are subject to VAT regardless of the method of their supply, including through the Internet, mobile applications and other electronic resources. The person responsible for calculating and paying tax to the budget is the recipient of services, that is, the customer company.
