In a bid to add extra revenue to the country's struggling budget, Ukraine has introduced new taxes for global tech giants whose online services are consumed by Ukrainian residents.
In early June, the Supreme Rada, Ukraine's parliament, passed a bill that slaps additional taxes on the likes of Apple, Netflix, Amazon and Facebook.
The bill stipulates that foreign tech companies that are not registered in Ukraine – and the global tech giants are not – will pay a 20% value-added tax (VAT) for digital services they provide to local users. The tax applies to companies selling various types of online content, including images, photos, electronic books, magazines, games and foreign TV broadcasts.
To simplify the procedure of paying the new tax for foreign tech firms, Ukraine will launch a dedicated web site connecting international tech companies with Ukraine's tax service. Using the web site, foreign companies will be able to pay taxes remotely either in dollars or euros, and tax documents will have to be submitted in both English and Ukrainian.
Extra taxes paid by tech companies that are not registered in Ukraine could annually raise at least UAH3bn ($110mn) for the state budget, Daniil Getmantsev, head of the parliament’s committee on finance, taxation and customs policy, was quoted as saying by Kyiv Post.
The state budget loses huge amounts in taxes from electronic services provided from abroad, according to Ukrainian lawmakers.
Incidentally, the move is in some way similar to one recently made by Russian lawmakers who are working on a piece of legislation that aims to make foreign tech companies register in Russia to be able to collect any revenue locally.
VAT for global companies selling their digital services in Russia was introduced back in 2016.
Although not such a huge market as Russia, for the likes of Google, Apple and Facebook, Ukraine is still an important market with over 40mn people, affordable taxation and softer laws on data protection.
This is the main reason why these companies prefer to launch their services in the country but do not open physical offices here, thereby avoiding the payment of taxes.
It was harder to amend the tax law in Ukraine because its tax system, based on material assets, isn’t fully adapted to digital services, Konstantin Solyar, a partner at the law firm Asters, was quoted as saying by Kyiv Post, adding that he doubts that tech giants would bother registering in Ukraine to pay taxes.
"No one will voluntarily pay taxes," he said.
Meanwhile, the bill has 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," said Sergey Petrenko, a tech entrepreneur and former director of Ukrainian office of the Russian tech behemoth Yandex.
"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," he added.
In another possible ramification of the new law, which some experts have pointed to, the imposition of new tax, coupled with a lack of economic incentives, could prompt some of the global tech services operating in Ukraine to 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.
This article is part of bne IntelliNews coverage of technology, blockchain, fintech, cryptocurrencies and the new economy. Sign up for the free monthly newsletter bneTech here, or read more tech stories on the website here.
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