Accounting for advertising services from Google, Facebook, and YouTube

Promoting a store or brand through online advertising has long been a commonplace. Google, Facebook, and YouTube are the largest platforms for advertising, so in this article, we will discuss how to account for advertising costs on these sites.

The main thing you should know is that the accounting of expenses will differ depending on how the contract with a particular company is concluded.

If you pay for Google advertising, then most likely you have an agreement with Google LLC, i.e. it is an ordinary legal entity registered in Ukraine. In this case, advertising expenses should be taken into account in the same way as other expenses related to the purchase of services from a resident.

In order to receive certificates of completion in the future without any problems, when setting up a business account on Google, Facebook, or YouTube, you must specify either a legal entity or an individual entrepreneur as the customer of advertising. If you indicate an individual as the customer of the advertisement, no one will generate and send you the certificates.

Accounting for advertising costs on Google, Facebook, or YouTube

In accounting, promotion expenses, including advertising on Internet sites, are classified as sales expenses and are charged to account 93 in the period in which the expense was incurred. If the payment was made for several months (in advance), then the entire amount is allocated to the debit of account 39 and written off in installments to account 93 in the period in which such an expense was incurred.

If you paid for advertising in advance in foreign currency, you should pay in hryvnia at the NBU exchange rate on the date of the advance. And you need to close such payment at the current exchange rate on the date when you receive the certificates of completion. In this case, you do not need to determine the exchange rate difference.

If you pay for advertising in foreign currency upon the provision of services, then you should pay at the NBU exchange rate on the date of service provision, i.e. the date specified in the act of work performed. In the case of post-payment, the exchange rate difference arises and must be determined as of the date of payment and the date of the balance sheet.

Income tax

The Tax Code does not provide for any special conditions for advertising expenses, so both low- and high-income companies account for expenses in the same way according to the accounting rules.

If a resident company is a highly profitable company and enters into an agreement with a non-resident company registered in a low-tax country, then the resident company is obliged to increase its accounting financial result by 30% of the cost of advertising expenses paid and received from the non-resident company.

Countries with low taxes include Ireland and Singapore (where Google's international offices are registered).

Repatriation tax

Repatriation tax at the rate of 20% must be paid if an agreement is concluded with a non-resident and this company produces or distributes advertising. In addition, a resident must pay the repatriation tax from its own funds, i.e., this 20% must be paid on top of the payment to the non-resident for its services.

These requirements are valid until the end of 2021. Starting from January 1, 2022, repatriation tax will no longer be required to be paid.

VAT

It also depends on who the contract is with: the Ukrainian office of Google, Facebook, YouTube, or a foreign (non-resident) office.

If you pay for advertising to a Ukrainian office, for example, Google LLC, then this is a payment for advertising to a Ukrainian company that is registered as a VAT payer. Google will register a tax invoice for the cost of the paid services and you will be able to include it in the tax credit according to the general rules.

If you pay for advertising to a non-resident, then the place of supply of advertising services is the place of registration of the recipient of such services, i.e. the territory of Ukraine. In this case, you should be guided by Art. 190.2 and Art. 208.2 of the TCU.

In this case, a VAT payer who paid for advertising services to a non-resident must draw up a tax invoice with the reason type "14". The date of the tax invoice will be the first event: either the date of payment or the date of provision of advertising services. The same rule applies to determining the NBU exchange rate.