The IT sphere, which is dynamically developing in Ukraine, has, at first glance, preferential taxation conditions.
Let’s take a look at what format of taxation exists in IT in Ukraine
For subjects of the software industry, Law of Ukraine No. 5091 dated January 1, 2013 provides for preferential terms for VAT tax (exemption) and income tax.
Temporarily, from January 1, 2013 until January 1, 2023, operations for the supply of software products, as well as operations with software products are exempt from value-added tax, the payment for which cannot be considered as royalties according to paragraphs two to seven of subp. 14.1.225 p. 14.1 of Article 14 of the Tax Code of Ukraine (hereinafter – the TCU).
Paragraph 261 of subsection 2 of section XX of the TCU separately approved types of software products, namely:
- the deliverables of computer programming in form of an operating system, system, applied, entertainment and/or educational computer program (their components), as well as in the form of access to them and Internet sites and/or online services;
- copies of computer programs, their parts, components in material and/or electronic form, including in the form of code (s) and/or links for downloading a computer program and/or their parts, components in form of code (s) for activation of a computer program or in another form;
- any changes, updates, applications, additions and/or expansion of the functionality of computer programs, the right to receive such updates, changes, additions, additions for a certain period of time;
- cryptographic information security tools.
Registration as a VAT payer for software delivery.
The legislation provides for registration as a VAT payer on a mandatory and voluntary basis. The voluntary registration is specified in article 182 of the TCU, we will not dwell on it.
As for the mandatory procedure
Subjects of business in IT have the right, and in some cases are obliged to register as payers of VAT. So, if the total amount of all operations for the supply of goods services (including using the global or local network), accrued to such a subject in the last 12 calendar months, exceeds UAH 1 million (without VAT), it is obliged to get registered as a payer of this tax.
According to subparagraph “b” of paragraph 185.1 of the TCU, the object of taxation is services, the place of delivery of which is the territory of Ukraine. Therefore, in order to deal with the VAT-based supply of IT services, we first determine what territory to consider as the place of their delivery in accordance with article 186 of the TCU.
Thus, according to clause 186.3 of the TCU, the place of delivery is defined as the place of registration (place of residence) of the recipient, in particular for services in:
- the granting of intellectual property rights, the creation of an order and the use of objects of intellectual property rights, including licensing agreements;
- development, delivery and testing of software, data processing and the provision of advice on information and other services in the field of information, including using computer systems.
IT services are included in this list, if they are received by a non-resident, and are not subject to VAT. The place of delivery is not the territory of Ukraine (as confirmed by the tax authorities in section 101.13 “Eyesight” of the Ministry of Revenues). They will not generate “taxable” volumes, which means that the entrepreneur does not need to get registered as a VAT payer.
And the operations for the delivery of software products in the customs territory of Ukraine are subject to VAT, but they are exempt from VAT taxation by clause 261 of subsection 2 of section XX of the TCU.
The consequence of this interpretation may be that the company may be obliged to register as a VAT payer, since, as follows from the individual tax consultation of the State Fiscal Service of Ukraine dated 13.07.2017 No. 15201/6/999915030275, the operations exempted from taxation relate to the total volume taxable for purposes of the person’s registration as VAT payer. That is, ambiguous interpretation of the legislation by the tax authorities can lead to incorrect administration of the VAT business.
About VAT taxation of related services and products for the supply of software
It should also be remembered that software products may include other derivative services, such as software testing. And if software and computer programs are unconditionally recognized as software products, then the services derived from them are considered informatization services for tax purposes.
In this regard, software testing is considered in the following aspects by the tax authorities:
- as part of the software products supply – with VAT exemption;
- as informatization services – with VAT taxation at the main fixed rate.
Thus, technical support, which is not part of the supply in form of software products and is provided to the resident, is subject to VAT on a general basis.
As for the delivery of software directly, under law it is exempt from VAT, regardless of:
- on what media (material or via the Internet, e-mail, etc.) it is carried out;
- the result of the programming of whom (the supplier or the third person) is it present, since the exemption applies to product deliveries, and not to its author;
- how many stages composed the products delivery to the consumer, since all such stages are exempt from VAT.
Separate components of software products are also exempted from VAT, with the help of which it was created or which can be used by the consumer separately.
If it is necessary to register a person carrying out IT activities as a VAT payer, they must be obliged to keep records of all the above operations exempted from taxation on the basis of clause 26 of Sec. 2 of the Transitional provisions of the TCU. Regarding the means of cryptographic protection of information, transactions with them can be exempt from VAT only if the business entity has a special license to carry out the relevant activities and certificates (expert opinions) for such means.
No preferences are applied for exemption from VAT in the following types of IT operations:
- import of software products; supply of information services;
- delivery of services/works on the development of software products by an individual (its individual components), upon which the customer receives ownership upon completion of these services/works (since the contractor does not receive ownership, in the meaning of tax legislation in this case there is no delivery of software products);
- delivery of systems/equipment in which software products are an integral part.
In all the above situations, a VAT rate of 20% is applied.
