Ukraine’s parliament passed a bill on June 3 that imposes additional taxes on foreign companies like Apple, Netflix, Amazon and Facebook, according to Danil Getmantsev, head of the parliament’s committee on finance, taxation and customs policy.
The bill said that foreign tech companies that are not registered in Ukraine will pay a 20% value-added tax, or VAT, for digital services they provide to local users. The bill targets content like images, photos, electronic books, magazines, games and foreign TV channels. Among other services are gambling, online advertising, data storage, and the supply of software.
Online platforms for remote education are exempt from taxes, as well as companies that deliver digital services directly through their permanent offices in Ukraine. Local users won’t have to pay this tax, according to the law.
Ukraine will launch a dedicated website to connect international tech businesses with the Ukrainian tax service, to which foreign companies will be able to pay the taxes remotely either in dollars or euros. All documents will have to be submitted in both English and Ukrainian.
Hetmantsev said that additional taxes from tech companies that are not registered in Ukraine could bring at least Hr 3 billion ($111.9 million) to the state budget.
The state budget loses huge amounts in taxes from electronic services provided from abroad, lawmakers said.
For international tech businesses like Google, Apple and Facebook, Ukraine is a huge market with over 40 million people, affordable taxation and softer laws on data protection. That is why these companies launch their services in the country but do not open physical offices here — it allows them to avoid taxation.
By imposing additional taxation on international tech giants, many countries, including Ukraine, try to regulate the untamed digital economy. Countries like the U.S., South Korea, Russia, Japan, and Canada already have or are about to introduce special taxation rules for digital services.
It was harder to amend tax law in Ukraine because its tax system, based on material assets, isn’t fully adapted to digital services, according to Constantin Solyar, a partner at the law firm Asters. He also doubts that tech giants would bother registering in Ukraine to pay taxes.
“No one will voluntarily pay taxes,” Solyar said in an interview with the Kyiv Post in July 2020.
This bill sparked controversy among Ukrainian tech experts and lawmakers.
Although the taxation of non-residential tech companies is good for the state budget, it can also entail higher expenses for tech companies and, as a result, their users.
“Not a single service has paid the additional taxes from its income, without raising the price for the customers. So the results are obvious —when Ukrainians go to buy digital services, including advertising on Instagram or even music on Spotify, they will pay 20% more,” according to Sergey Petrenko, tech entrepreneur and the former director of Yandex Ukraine.
Ukrainians are also worried that with the lack of economic incentives some services will leave the country.
“At the moment, our country needs these services more than they need us,” according to Artem Borodatyuk, head of tech company Netpeak Group.
Getmantsev, however, disagrees. He said that Facebook is ready to pay taxes, and it already has the tools to do so. Ukraine’s most popular messaging app Viber has also agreed to pay.
“Global experience shows that large multinational companies register as taxpayers remotely and pay taxes to the budget independently and voluntarily,” he said in an interview with Ukrainian media Ukrainska Pravda in February.
