Artem Kuzmenko, Partner
Draft Law No. 16051-1, which was adopted by the Verkhovna Rada at its first reading on 16 September, is often referred to simply as “VAT on parcels valued at up to €150”. However, this description somewhat oversimplifies the substance of the proposed changes. The draft law introduces a special VAT regime for distance sales conducted through electronic platforms, broadly similar in its approach to the European Union’s Import One-Stop Shop (IOSS) and deemed supplier models. Importantly, Draft Law No. 16051-1 should be considered alongside Draft Law No. 15460, which proposes amendments to the Customs Code of Ukraine, as the full regulatory framework is intended to operate through these two pieces of legislation in conjunction.
Perhaps the most significant aspect of the proposed reform is not the VAT rate itself, but rather who will be responsible for administering the tax. Where an individual purchases non-excisable goods valued at up to €150 through an online marketplace, VAT would be collected at the point of purchase. Responsibility for calculating and remitting the tax would shift to the electronic platform. From the state’s perspective, this approach considerably simplifies administration: rather than processing millions of individual parcels at the border, the tax authorities would primarily deal with major electronic platforms.
For the marketplaces themselves, however, the implications are more substantial. They would need to separately identify sales to Ukrainian customers, accurately determine the taxable amount, incorporate VAT into the payment process, maintain dedicated accounting records and fulfil reporting obligations. At the same time, the proposed special regime does not provide for the conventional mechanisms of input VAT recovery, VAT invoices or standard VAT returns. Consequently, simply adding 20% to the purchase price would not be sufficient for major international platforms. They would need to adapt their checkout processes, billing arrangements, accounting procedures and IT systems, and potentially revise their contractual arrangements with sellers and logistics providers.
It would also be inaccurate to describe the reform as introducing “VAT on all parcels”. Although the existing €150 VAT exemption threshold for goods purchased from abroad would be removed, certain exemptions would remain. These include non-commercial gifts sent between individuals with a value of up to €45, certain categories of unaccompanied baggage, and specific goods intended for security and defence purposes. Furthermore, the special regime involving electronic platforms would apply specifically to distance sales, while other types of imports would remain subject to the general taxation rules.
For Ukrainian retailers, the reform is primarily a matter of competitive conditions. Domestic sellers operate within the VAT framework, whereas goods purchased from foreign sellers can currently reach Ukrainian consumers in parcels valued at up to €150 without VAT being charged. The proposed reform is intended to create more equal competitive conditions while also generating additional revenue for the state budget. At the same time, it should reduce the incentive to artificially split commercial consignments into numerous smaller parcels to benefit from the existing exemption.
Looking ahead to the second reading, I would focus primarily on the practical implementation of the proposed framework. It is essential to clearly delineate the responsibilities of electronic platforms, sellers, carriers and customs authorities and, most importantly, to establish effective data exchange between them. If VAT has already been paid by the customer at checkout, the customs authorities must be able to verify this; otherwise, there is a risk of the tax being charged again at the border. Equally important is ensuring that the system properly accommodates returns, refunds and the corresponding VAT adjustments.
For me, therefore, the central issue of this reform is no longer the 20% VAT rate itself. What matters more is whether it will be possible to establish a mechanism that is practical and efficient for consumers, international platforms and the state alike.
