In an age of business globalisation, Ukrainian companies are increasingly entering international markets and providing services to foreign counterparties.
This activity opens up new growth opportunities but also raises a number of tax issues, in particular regarding the correct application of value added tax. The key aspect here is determining the place of supply of services, since it decides whether a transaction is subject to VAT in Ukraine. Practice shows that even minor mistakes in classifying transactions or in documentation may lead to tax risks, including additional tax liabilities and penalties.
In this publication we look at the main VAT consequences of providing services to non-residents, analyse the current approaches of the tax authorities and case law, and point out typical mistakes of taxpayers and how to avoid them.
Under Article 185 of the Tax Code of Ukraine (the TCU), the object of VAT taxation includes taxpayers' transactions for the supply of services whose place of supply is located in the customs territory of Ukraine in accordance with Article 186 of the Code. Therefore, to determine the VAT base when providing services, it is important to establish the place of supply under the rules of Article 186 of the TCU, according to which the place of supply of services is:
- the place where services related to movable property are actually supplied;
- the actual location of the immovable property, including property under construction, for services related to immovable property: services of real estate agencies, services for the preparation and performance of construction works, and other services at the location of the immovable property, including property under construction.
Thus, services related to immovable property located in Ukraine are subject to VAT even if you provide them to a non-resident who is only planning transactions with such property.
However, the tax law sets out a clear list of services which, when the recipient is a non-resident, are not subject to VAT, since their place of supply is deemed to be outside the customs territory of Ukraine.
These services include:
- granting economic intellectual property rights, creating objects of intellectual property to order and using them;
- consulting, engineering, legal (including attorneys'), accounting, audit and actuarial services, as well as software development and testing, data processing, IT consulting, provision of information and other IT services, including with the use of computer systems;
- advertising services;
- telecommunications, radio and television broadcasting services;
- freight forwarding services;
- provision of personnel, including where the personnel work at the buyer's place of business, and other services provided for by item 186.3 of Article 186 of the TCU.
The Supreme Court defines «supply of services» as any transaction that is not a supply of goods, or another transaction transferring rights to intellectual property and other intangible assets or granting other property rights in respect of such intellectual property, as well as the provision of services consumed in the course of a certain action or activity (Resolution of the Supreme Court, panel of the Administrative Court of Cassation, of 15 May 2020 in case No. 803/478/17, administrative proceedings No. K/9901/41336/18).
In our firm's practice, there was a case where the client, a Ukrainian legal company, was to provide a Polish company with consulting services on developing a concept for building on a land plot in Ukraine, as well as engineering services. The question of VAT arose: consulting and engineering services provided to a non-resident are not subject to VAT, but these services related to real estate in Ukraine.
The Tax Code of Ukraine defines engineering as the provision of services (performance of works) involving drawing up technical specifications and design proposals, conducting research and feasibility studies, performing engineering surveys for construction, developing technical documentation, designing and engineering equipment and technologies, providing advice and designer supervision during installation and commissioning, as well as providing advice related to such services (works).
In December 2025, the Main Department of the State Tax Service in Dnipropetrovsk Region published on its official website its position on charging VAT on engineering services for a real estate object located in the customs territory of Ukraine. This position, which narrows the general definition of engineering services down to the specific types of services listed in the consultation, implies that services at the location of immovable property, including engineering services provided to a non-resident for a real estate object located in the customs territory of Ukraine, that are not included in the list in sub-item 14.1.85 of item 14.1 of Article 14 of the TCU, are subject to VAT on general grounds at the standard rate, as their place of supply is deemed to be in the customs territory of Ukraine. In our view, this position unjustifiably gives one legal provision priority over another and significantly narrows the concept of engineering services. However, the risks should not be ignored, as the taxpayer's position would have to be defended in court. Practice shows that the tax authorities are unlikely to side with business in this situation.
As the IT market grows, IT and computer system services are increasingly provided to non-residents. The State Tax Service of Ukraine has repeatedly issued individual tax consultations on charging VAT on taxpayers' supplies of IT and computer system services. In particular, the tax authority has concluded that if the services provided by a company to a non-resident (including software development, modification, testing and technical support, and other IT and computer system services) fall within the services listed in item 186.3 of Article 186 of Section V of the Code, such supplies to a non-resident are not subject to VAT, since the place of supply is outside the customs territory of Ukraine, and their volume is not taken into account when calculating the total volume of taxable supplies of goods/services for the purposes of mandatory VAT registration.
Experience shows that VAT on services provided to non-residents is often the subject of court disputes, and courts may rule both in favour of taxpayers and in favour of the tax authorities. The key point to prove in such disputes is the substance of the business transaction: this aspect has the greatest influence on the courts' decisions. The Supreme Court has repeatedly considered this category of cases. To establish the type of services provided to a non-resident, the Supreme Court examined not only the contracts and acceptance certificates, but also other documents confirming the legal nature of the services: the development and approval of drawings, technical specifications, assessment of compliance with the contract terms, etc.
For example, in its Resolution of 8 December 2022 in case No. 160/8533/20, the Supreme Court, panel of the Administrative Court of Cassation, reached similar conclusions on determining the place of supply of services: «A systematic analysis of these provisions shows that, depending on the content of the business transaction for the supply of services, the services specified in item 186.3 of Article 186 of the Tax Code of Ukraine are not subject to VAT. In all other cases, the place of supply of services is the supplier's place of registration, and such services are accordingly subject to VAT». These conclusions again confirm that courts look not only at how a service is worded (the list of services in the contract and certificates), but also at the substance of the transactions, and examine in depth other documents confirming the nature of the services. It is therefore crucial to classify service transactions correctly in the documents and to support one's position with the evidence collected. For example, to confirm the non-resident's place of registration, it is advisable to obtain an extract on the registration of the legal entity in its country of incorporation. Remember that foreign documents must be legalised for use in Ukraine, i.e. undergo consular legalisation or be apostilled. Documents in a foreign language must be translated into Ukrainian. This will minimise tax risks and increase the chances of successfully defending your position in a dispute.
