1) Should individual-entrepreneur pay VAT on the amount of commission withheld by foreign marketplace for the sale of products/services on the Internet platform offered by it? Is it necessary to pay VAT on the amount of paid by individual-entrepreneur commission, which includes payment for received advertising services provided by the foreign marketplace on its Internet platform?
Paragraph 185.1 Article 185 of the Tax Code of Ukraine (hereinafter – Code) stipulates that the VAT taxation object is, in particular, the taxpayer’s provision of services, provision place of which is located in the customs territory of Ukraine, according to Article 186 of the Code.
Paragraphs 186.2 – 186.4 Article 186 Section V of the Code define categories of services, provision place of which is determined by the registration place of supplier or recipient of relevant services, or by the place of actual provision of relevant services.
Provision place of services specified in Paragraph 186.3 Article 186 Section V of the Code is considered to be the place where recipient of services is registered as a business entity or – in the absence of such place –place of permanent or primary residence.
Provision place of electronic services is considered to be location of service recipient (Paragraph 186.31 Article 186 Section V of the Code).
Provision place of services, except for operations specified in Paragraphs 186.2, 186.3 and 186.31 Article 186 Section V of the Code, is the supplier’s registration place (Paragraph 186.4 Article 186 Section V of the Code).
Therefore, procedure for the VAT taxation of operations on provision of services directly depends on the place of their supply.
Term "electronic services" and types of such services are defined in Sub-paragraph 14.1.565 Paragraph 14.1 Article 14 Section I of the Code. Electronic services mean services that are provided via the Internet, automatically, with a help of information technologies and mainly without human intervention, including by installing a special application or application on smartphones, tablets, television receivers or other digital devices. Such services include, in particular, but not exclusively, services from:
provision of advertising services on the Internet, mobile applications and other electronic resources, providing advertising space, including by placing banner advertising messages on websites, web pages or web portals;
provision of access to informational, commercial, entertainment electronic resources and other similar resources, in particular, but not exclusively, placed on platforms for sharing information or video materials.
Specifics of the VAT taxation of provision of electronic services by non-residents – VAT payers to individuals (including individuals-entrepreneurs who are not registered as the VAT payers) in the customs territory of Ukraine are established by Article 2081 Section V of the Code.
In particular, individual for the VAT taxation purposes is a non-resident individual who does not have a permanent establishment and provides electronic services in the customs territory of Ukraine to individuals, including individuals-entrepreneurs who are not registered the VAT payers, including by providing access to electronic services through electronic interface, provision of technical, organizational, informational and other opportunities, which are carried out using information technologies and systems for establishing contacts and concluding agreements between sellers and buyers and/or providers of such electronic services under intermediary contracts on its own behalf, but on behalf of the provider of electronic services (Sub-paragraph "e" of Sub-paragraph 14.1.139 Paragraph 14.1 Article 14 of section I of the Code).
Paragraph 2081.1 Article 2081 Section V of the Code establishes taxation rules of electronic services, provision place of which is located in the customs territory of Ukraine, in case of provision of such services to individual, including individual-entrepreneur who is not registered as the taxpayer (further in this Article – individual), individual – non-resident, who is defined by Sub-paragraph "e" Sub-paragraph 14.1.139 Paragraph 14.1 Article 14 of section I of the Code and who is registered as the taxpayer according to Paragraph 2081.2 Article 2081 Section V of the Code.
As follows, if services provided to individual-entrepreneur by the foreign "marketplace" according to the contract terms and norms of the Code are classified as electronic services, then provision place of such services is determined in the customs territory of Ukraine, and therefore such services are subject to the VAT taxation; calculation and payment of the VAT for such operation is carried out depending on the individual-entrepreneur’s status (registered or not registered as the VAT payer).
If provision of electronic services via the Internet is carried out by non-resident to individual-entrepreneur who is not registered as the VAT payer, then calculation and payment of the VAT for such operation must be carried out by non-resident individual according to Article 2081 Section V of the Code, i.e. the foreign "marketplace" (if such "marketplace" registered as the VAT payer in Ukraine).
If provision of electronic services via the Internet is carried out by non-resident to individual-entrepreneur – VAT payer, then obligation to calculate VAT tax liabilities arises for individual-entrepreneur – VAT payer according to Article 208 Section V of the Code.
Paragraphs 208.2 and 208.3 Article 208 Section V of the Code stipulate that recipient of services provided by non-residents, provision place of which is located in the customs territory of Ukraine, charges tax at the basic tax rate or at the 7 percent rate for services specified in Clauses 4 – 6 of Sub-paragraph "c" Paragraph 193.1 Article 193 Section V of the Code, on the tax base determined according to Paragraph 190.2 Article 190 Section V of the Code.
Therefore, individual-entrepreneur – VAT payer – recipient of services from non-resident, provision place of which is located in the customs territory of Ukraine, is a responsible individual in terms of accruing and paying tax to the budget for such services (commission amount received by the foreign marketplace upon the sale of products/services and services from advertising).
For reference, please note that information regarding registration of non-resident – VAT payer can be checked on web portal of the State Tax Service by following the link Electronic cabinet→Registers→VAT payer register data under condition of identification using electronic signature according to the Law of Ukraine "On electronic identification and electronic trust services". https://cabinet.tax.gov.ua/registers
2) Does individual-entrepreneur have to pay the VAT from withheld commission for using payment systems?
For the VAT taxation purposes, provision place of payment operation services, according to Paragraph 186.4 Article 186 Section V of the Code, is the registration place of their supplier.
As follows, if services for provision of payment operations are provided to individual-entrepreneur by residents – providers of payment services, operators of payment systems, then provision place of such services is the customs territory of Ukraine. At the same time, provision of such services according to Sub-paragraph 196.1.5 Paragraph 196.1 Article 196 section V of the Code are not subject to the VAT taxation.
If provision of services for execution of payment operations is provided to individual-entrepreneur by non-residents, then provision place of such services is determined outside the customs territory and such operations are also not subject to the VAT taxation.
Therefore, purchasing services from providers of payment services, operators of payment systems, individual-entrepreneur does not need to accrue and pay VAT for such operations, regardless of whether the provider of such services is resident or non-resident.