“Google Tax”: How Sole Proprietors and Companies Pay VAT on Electronic Services

When a Ukrainian store pays for a foreign online service, the value-added tax (VAT) payment procedure depends on the type of service, the buyer’s status, and the supplier’s registration. If an individual entrepreneur (sole proprietor) who is not registered as a VAT payer buys an electronic service from a non-resident registered under Article 208-1 of the Tax Code of Ukraine, the supplier charges the tax. A legal entity that is not registered for VAT, or a sole proprietor who is a VAT payer, independently calculates the tax under Article 208 when the relevant conditions apply.

Before paying, check who is named as the buyer in the contract and payment profile, the buyer’s VAT payer status, who actually supplies the service, and whether the tax is included in the price. Give the accountant the contract, invoice, and proof of payment. Using these documents, the accountant should determine who charges VAT, which tax return must be filed, and when the tax must be paid. The information below concerns taxation in Ukraine.

Determine whether the purchase qualifies as an electronic service

“Google Tax” is the common name for Ukrainian VAT on electronic services supplied by foreign providers. In this context, a non-resident is a foreign supplier that is not a tax resident of Ukraine. Find the name of the company providing the service in the contract or invoice; it may differ from the service’s brand name.

Under subparagraph 14.1.56-5 of the Tax Code of Ukraine, electronic services are supplied over the internet automatically, predominantly without human intervention. For a store, they may include:

• access to cloud storage—a place to store files on the supplier’s servers—or to those servers’ computing resources;
• software, updates, and access to software;
• access to databases, photographs, videos, or electronic publications;
• automated courses with minimal instructor involvement;
• advertising space and automated placement of advertising on websites or in applications.

Classify the service according to what the store actually receives. For example, automated access to a photo library meets the criteria for an electronic service. The Code expressly excludes a specialist’s individual consultation delivered by email from this category.

Which purchases are not electronic services

Placing an order through a website does not, by itself, make a purchase an electronic service. Subparagraph 14.1.56-5 excludes, among other things:

• goods and services ordered online but actually supplied without using the internet, such as accommodation, car rental, catering, and passenger transport;
• remote lessons where the internet is used solely for communication between the instructor and the student;
• consultations by email;
• works on physical media;
• internet access;
• goods or other services whose total price includes an electronic component.

For these purchases, the accountant must separately determine the place of supply and the tax treatment. Exclusion from the electronic services category does not automatically mean exemption from VAT.

Determine whether the service is taxable in Ukraine

The place of supply is the territory to which the Tax Code assigns a transaction for tax purposes. For electronic services, it is the recipient’s location under paragraph 186.3-1. For a sole proprietor, the location is determined by the place where the entrepreneur is registered. Therefore, enter your business registration details when setting up a subscription for business use.

For an individual who is not registered as an entrepreneur, the actual location is taken into account. The Code provides for information about communication methods or the location of the device, as well as additional evidence, such as a billing address or bank details. The buyer’s citizenship alone does not determine the place of supply.

If a store orders an advertising service from a non-resident that does not meet the criteria for an electronic service, the accountant applies a separate rule. Under subparagraph “b” of paragraph 186.3, the place of supply is determined by the recipient’s place of registration as a business entity. For a Ukrainian business, this purchase may create an obligation to calculate VAT independently under Article 208.

Determine who must charge VAT

This table applies to taxable electronic services whose place of supply is in Ukraine. VAT payer status is determined by the buyer’s tax registration. Paying from a business account does not establish this status.

Tax liabilities are the amount of VAT that must be charged on a transaction. A tax credit allows a VAT payer to reduce its VAT liabilities by the tax amount on purchases, subject to the conditions in the Code. A tax invoice is an electronic tax document that, in cases provided for by the Code, confirms the VAT charge and the right to a tax credit.

The exception in Article 208 for a sole proprietor who is not registered for VAT is expressly linked to an electronic service supplied by a non-resident registered under paragraph 208-1.2. If the supplier is not registered as a VAT payer in Ukraine, the buyer is a sole proprietor who is a Ukrainian resident, and the place of supply of the taxable service is Ukraine, the accountant determines the buyer’s liability under Article 208, taking into account the exceptions set out there. The absence of a VAT line on an invoice does not, by itself, establish all these circumstances.

A legal entity that is not registered for VAT is not among the recipients covered by the special procedure in Article 208-1. Even if the store pays the single tax, the accountant must separately determine its obligations for services received from a non-resident under paragraph 180.2 and Articles 208 and 297.

Check the supplier’s registration regardless of the purchase amount

Under paragraph 208-1.2, a non-resident must file a registration application if, in the previous calendar year, the total value of its electronic services supplied to individuals—including sole proprietors not registered for VAT—with a place of supply in Ukraine exceeded the equivalent of UAH 1,000,000. The threshold is calculated using the official exchange rate of the National Bank of Ukraine in effect at 00:00 on January 1 of the relevant year.

The supplier totals its relevant sales to all such Ukrainian recipients. It may charge VAT on a store subscription that costs less than one million hryvnias. This threshold also does not determine whether the buyer must register as a VAT payer.

A non-resident must file an application for mandatory registration by March 31 inclusive of the year following the year in which it exceeded the threshold. If sales are lower, it may register voluntarily. Therefore, for a particular purchase, check the actual registration status of the company that issues the invoice.

Calculate 20% and check the final price

For taxable electronic services, VAT is 20% of the service value excluding tax and is added to that amount under paragraph 208-1.6. The standard rate is set out in paragraph 193.1. This charge does not apply to transactions exempt from VAT.

Illustrative example in the hryvnia equivalent. If a service costs UAH 1,000 excluding VAT, the tax is UAH 1,000 × 20% = UAH 200, and the total price is UAH 1,200. If the invoice already shows UAH 1,200 including VAT, the tax included in that amount is UAH 1,200 × 20 / 120 = UAH 200.

Before paying, check whether the advertised price includes tax. Under the special procedure in Article 208-1, the supplier determines the tax base—the value on which the tax is calculated—and the VAT in euros or United States dollars. The hryvnia amount charged may depend on the foreign-currency payment terms, so also keep the invoice in the supplier’s currency.

When to check eligibility for a VAT exemption

If the store buys access to educational content or electronic publications, give the accountant a description of the service so they can compare it with the requirements of Article 197. For example, subparagraph 197.1.32 exempts educational services delivered through access to public educational, scientific, and information resources in fields of knowledge and specialties for which higher education students are trained, provided that the instruction does not require human involvement. Calling something an “online course” is not sufficient for the exemption.

Subparagraph 197.1.25-1 extends the exemption to the supply of electronic copies of audiobooks narrated in Ukrainian and the provision of access to those audiobooks, except for publications of an erotic nature. Keep a description of the access purchased and the information relevant to applying the exemption: the accountant needs them to determine the price and tax.

What a sole proprietor not registered for VAT must do

When a non-resident registered under Article 208-1 charges VAT on an electronic service, the sole proprietor pays the invoiced amount. The supplier reports and remits this tax to the budget. The buyer does not charge VAT again under Article 208 on this transaction.

Under paragraph 208-1.7, a non-resident does not issue a Ukrainian tax invoice under this special procedure. A sole proprietor not registered for VAT is not entitled to a tax credit on this purchase, so there is no need to request an invoice to reduce tax liabilities.

For each service, keep the contract or subscription terms, an invoice itemizing the price, the service receipt, and bank confirmation of payment. Under paragraph 208.5-1, any payment document, including an electronic one, confirms the supply of electronic services by a non-resident.

If the circumstances of the purchase mean that a sole proprietor not registered for VAT must charge the tax independently under Article 208, they calculate the tax, file a special calculation, and pay the amount to the budget. The procedure for these steps for a recipient not registered as a VAT payer is described below.

How an accountant charges VAT under Article 208

Determine the date of the liability and the hryvnia tax base

Under paragraph 187.8, tax liabilities arise on whichever of these events occurs first: funds are debited to pay for the service, or a document confirming its supply is prepared. The accountant must compare both dates. The date of an invoice for a future payment does not, by itself, mean that the service has already been supplied.

Under paragraph 190.2, the tax base is the contractual value of the service, including taxes and duties included in the price, but excluding VAT. The accountant converts the foreign-currency value using the National Bank of Ukraine exchange rate on the date the liability arises.

Illustrative example. A company receives a taxable electronic service worth EUR 100. The document confirming its supply is prepared on the 5th, and payment is debited on the 8th. If the illustrative exchange rate on the 5th is UAH 45 per euro, the tax base is 100 × 45 = UAH 4,500, and VAT is UAH 4,500 × 20% = UAH 900. The accountant reports the liability in the month that includes the 5th.

Prepare the tax reporting according to the buyer’s status

If the buyer is registered for VAT, the accountant processes the transaction as follows:

1. Prepares an electronic tax invoice on the date the liability arises, showing the VAT calculated independently.
2. Ensures the invoice is signed by an authorized person using a qualified electronic signature or an advanced electronic signature based on a qualified electronic signature certificate, under paragraph 201.1.
3. Registers the invoice in the Unified Register of Tax Invoices, the state electronic register of these documents.
4. Includes the liability in the return for the relevant reporting period under paragraphs 208.2–208.3 and files the return electronically under paragraph 49.4.

If the invoice is registered on time, the accountant includes the VAT in the tax credit for the period in which the invoice was prepared, provided that the corresponding liabilities are reported in the return. These conditions are set out in paragraphs 198.2 and 201.12. If the invoice is registered late, the tax credit is reported for the period in which it is registered, subject to the limitations in paragraph 198.6. The liabilities remain tied to the date on which they arose.

For services taxed at the standard rate, the accountant reports the liability in line 6.1 of the return and, if the buyer is entitled to it, the tax credit in line 13.1, in accordance with Section V of the Procedure for Completing and Filing VAT Tax Reporting, approved by Order No. 21 of the Ministry of Finance of Ukraine dated 28.01.2016.

The owner must tell the accountant what the service is used for. Using services purchased with VAT for non-business activities or other transactions listed in paragraph 198.5 may require compensating liabilities—an additional VAT charge because of that use. Therefore, equal amounts of VAT charged and tax credit do not guarantee that no tax is payable.

If a legal entity or a sole proprietor not registered for VAT must charge tax under Article 208, the accountant does not issue a tax invoice. They file the calculation of tax liabilities for services received from a non-resident under paragraph 208.4 and arrange payment of the tax. This also applies to a sole proprietor not registered for VAT if the circumstances of the purchase mean that the exception for electronic services from a non-resident registered under Article 208-1 does not apply.

This recipient is not entitled to a tax credit. For payment and liability purposes, the recipient is treated as a VAT payer under paragraph 208.5. The accountant prepares and files the calculation under paragraphs 5–7 of Section I and Sections III and VII of Procedure No. 21.

Add reporting and payment deadlines to the calendar

For a registered VAT payer, the basic reporting period is a calendar month. Under Article 203, the accountant files the return within 20 calendar days after the last day of the reporting month. The declared amount must be paid within 10 calendar days after the filing deadline. Filing the return early does not start this 10-day period earlier.

If the buyer is registered for VAT on a day other than the first day of a month, its first reporting period runs from the registration date through the last day of the first full calendar month, under paragraph 202.1. The accountant includes the transaction in this first period and determines the filing deadline after it ends.

For a legal entity or sole proprietor not registered for VAT who charges tax independently under Article 208, the accountant files a special calculation for the relevant calendar month within 20 calendar days after the month ends. The monthly period and the requirement to file a calculation only when relevant transactions occur are provided for in paragraphs 5 and 7 of Section I and paragraph 9 of Section III of Procedure No. 21. The filing deadline is determined under subparagraph 49.18.1 of the Code. The amount charged must be paid within 10 calendar days after the filing deadline under paragraph 57.1, taking paragraph 208.5 into account.

The accountant determines the month in which the liability arises based on the first event under paragraph 187.8. If the second event for the same service that has already been paid occurs in another month, VAT does not have to be charged again on the same amount.

If the last filing day falls on a weekend or public holiday, paragraph 49.20 moves the deadline to the next operational day—the day on which the relevant reports are accepted. The accountant counts 10 calendar days for payment from the actual filing deadline. If the last payment day also falls on a weekend or public holiday, paragraph 57.1 moves it to the next operational day. The calendar must show two separate due dates: one for filing and one for payment.

Register the tax invoice on time

For a VAT payer, the invoice registration deadline is separate from the VAT return filing deadline. Under paragraph 89 of subsection 2 of Section XX of the Code, during martial law in Ukraine and for six months following the month in which it ends or is cancelled, the accountant registers invoices:

• those prepared from the 1st through the 15th, inclusive, by the 5th of the following month, inclusive;
• those prepared from the 16th through the last day of the month, by the 18th of the following month, inclusive.

Outside this temporary period, paragraph 201.10 sets the general deadlines:

• for invoices prepared from the 1st through the 15th, inclusive, by the last day of the same month, inclusive;
• for invoices prepared from the 16th through the last day of the month, by the 15th of the following month, inclusive.

A separate deadline applies to summary invoices under paragraph 198.5, which combine the relevant VAT charges for a month: within 20 calendar days after the end of the month in which they are prepared.

Before sending the invoice, the accountant must check the registration limit—the amount of VAT for which the payer can register tax invoices under paragraph 200-1.3 of the Code:

1. Check whether the available limit is sufficient to register the invoice.
2. If the limit is insufficient and the liability has already been reported, determine whether registration is possible under paragraph 200-1.9. It allows the use of a separately calculated amount for invoices for reporting periods in which the declared liabilities exceeded the tax shown on registered invoices.
3. If this mechanism is insufficient or its conditions are not met, determine how much must be added. Under paragraph 201.10, the payer transfers this amount from its bank account or account with a non-bank payment service provider to its account in the electronic VAT administration system—a special account for settlements with the budget.
4. Check the available amount for registration, submit the invoice, and keep the electronic registration receipt.

For failure to meet the deadlines in paragraph 89, paragraph 90 sets a penalty based on the length of the delay:

• up to 15 calendar days: 2% of the VAT amount on the invoice;
• 16–30 days: 5%;
• 31–60 days: 10%;
• 61–365 days: 15%;
• 366 days or more: 25%.

These rates apply during the same temporary period: martial law in Ukraine and the six months following the month in which it ends or is cancelled.

Pay the tax and check that it has been credited

A registered VAT payer settles the amount due under the return through an account in the electronic VAT administration system. The accountant determines the total amount payable under the return, checks the balance in that account, and arranges a top-up if needed under Articles 200 and 200-1 of the Code.

A recipient not registered for VAT pays the amount under the special calculation to the appropriate budget account. Before making the payment, the accountant checks the details on the State Tax Service of Ukraine’s “Рахунки для сплати платежів” (payment accounts) page or in the private section of the Electronic Cabinet, the service for interacting with the tax authority.

To find the account details in the Electronic Cabinet:

1. Open the “Стан розрахунків з бюджетом” menu (budget settlement status).
2. Go to the “Реквізити” tab (account details).
3. Check the relevant budget account details against the payment information.

After filing, the owner or accountant keeps confirmation that the report was accepted. After payment, they check the amount and verify that it has been credited in the budget settlement records. If a report is rejected or a payment is sent using incorrect account details, the accountant determines what must be corrected.

The non-resident’s quarterly deadlines under Article 208-1 apply to the supplier: it files a simplified return within 40 calendar days after the quarter and pays the tax within 30 calendar days after the filing deadline. The Ukrainian buyer determines its own deadlines under Article 208 using the procedure described above.

Set up the store’s payment profile and documents

1. Identify the buyer before paying. Enter the actual recipient in the contract and profile: the sole proprietor or legal entity, its name, and registration details. A staff member’s personal profile makes it harder to establish who made the purchase.
2. State the VAT status. If the buyer is registered for VAT, give the supplier the buyer’s individual VAT payer number. An individual’s registration number or payment from a business account does not replace this confirmation.
3. Identify the supplier. Give the accountant the contract and invoice. They should compare the company named in those documents, request its Ukrainian registration details, and check them against the VAT payer register. If payment goes through a platform, the accountant should also determine its role in selling the service.
4. Check the price. Compare the price excluding tax, the VAT amount, and the total amount to be charged.
5. Give the accountant the documents promptly after purchase. Along with the invoice, provide proof of payment, a document confirming the service was supplied if one is available, and an explanation of how the store uses the service.
6. Reconcile the accounts at the end of the month. The accountant should compare bank debits with service invoices, liabilities charged, registered invoices, and tax reporting to identify transactions that were omitted or reported twice.

Under paragraph 186.3-1, if the contract does not state that the recipient is a business entity, the electronic service is considered to have been received by an individual, including a sole proprietor not registered for VAT. Therefore, the buyer’s details in the contract and profile affect the tax treatment of the purchase.

If a service is sold through an intermediary, paragraph 208-1.1 generally treats the intermediary as the supplier for this tax procedure. An exception applies to intermediary agreements where the invoice or receipt identifies the list of services and the actual supplier. Keep a document with this information so the accountant can identify the supplier.

Correct common errors

The supplier charged VAT to a VAT payer who used a personal profile

Give the support team the correct buyer details and VAT payer number, and ask them to correct the purchase documentation. The accountant must separately determine the liability under Article 208. An amount on a foreign invoice does not, by itself, replace this liability or create a Ukrainian tax credit.

A sole proprietor not registered for VAT charged the tax again after a registered supplier had already charged it

The accountant must check the non-resident’s registration, the type of service, and the buyer’s details. For an electronic service covered by Article 208-1, paragraph 208.1 excludes the application of Article 208 to that sole proprietor. If the excess amount has already been reported in a special calculation, the accountant corrects it under the rules in Section VII of Procedure No. 21.

A legal entity not registered for VAT assumed the supplier had fulfilled its obligation

Give the contract and invoice to the accountant: the special procedure for individuals does not cover a legal entity. The accountant must determine the entity’s liabilities, file the required calculation, and arrange payment. The owner or employee responsible for the purchase contacts the supplier to correct the documentation.

The accountant waited for payment and missed an earlier service document

The accountant must compare the dates when funds were debited and the document confirming supply was prepared under paragraph 187.8, then determine the correct reporting month. If a return for that month has already been filed with an error, the relevant figures must be corrected.

The purchase was called an electronic service only because it was paid for online

Give the accountant the contract and a description of the purchased goods or service. For consultations, work performed by a specialist, or goods, the accountant must apply the rules for the relevant type of transaction.

Official sources

• Tax Code of Ukraine dated 02.12.2010 No. 2755-VI: subparagraph 14.1.56-5; paragraphs 49.18–49.20, 57.1, 180.2, 186.3, 186.3-1, 187.8, 190.2, 193.1; subparagraphs 197.1.25-1 and 197.1.32; Articles 198, 200, 200-1, 201–203, 208, 208-1, and 297; paragraphs 89–90 of subsection 2 of Section XX.
• Order No. 21 of the Ministry of Finance of Ukraine dated 28.01.2016, “On Approval of the Forms and Procedure for Completing and Filing VAT Tax Reporting”: paragraphs 5–7 of Section I and Sections II–III, V, and VII of the Procedure.
• State Tax Service of Ukraine: “Рахунки для сплати платежів” (payment accounts).

Start with the next payment for a foreign service: open the contract and payment profile, and check the buyer details, supplier, and price breakdown. Give this information to the accountant so you can determine before paying who must charge VAT and, if needed, identify the reporting period and the filing and payment deadlines.