Digital VAT/GST Rule Changes to Start 2022

The start of 2022 witnessed a further acceleration of VAT/GST rules applied to the online sales of non-resident digital businesses.

Here, we summarise the more interesting developments since the dawn of 2022.

Ukraine

Ukraine’s new rules came into effect on January 1, 2022, but there was some difficulty as the registration portal only became operational in the last week of 2021. The key driver for the rule change in Ukraine is two-fold: one, to raise additional revenue for the Ukraine exchequer and, two, level the playing field between domestic and international digital service suppliers. There is a tolerance period up to March to register. The tax will have to be collected only from the registration date.

Cambodia

Cambodia has followed the path of its neighbours Thailand and Vietnam in attempting the bring the B2C and B2B digital services supplied by non-resident businesses within the scope of its VAT rules. However, in mid-January the Cambodian authorities delayed the introduction of the new VAT rules. The rules were originally due to go live on January 1, 2022, but were postponed to April 1, 2022. This delay allowed affected non-resident digital businesses additional time to register for VAT in Cambodia.

Kazakhstan

New VAT rules in Kazakhstan took effect on January 1, 2022, but with one interesting difference to other rules in place: there is no requirement to submit a VAT return. Kazakhstan has followed the path of its Central Asian neighbour Uzbekistan in changing its taxation rules as they apply to online sales supplied by non-resident businesses. The Uzbek VAT obligations commenced for non-resident digital businesses on January 1, 2020. It should also be noted that those new rules also include low value goods.

Armenia

An interesting aspect of Armenia’s VAT rules is that there is no threshold to registration. The implication here is that affected non-resident digital businesses have VAT registration obligations from their very first sale in Armenia. The rules came into effect on January 1, 2022. Armenia’s neighbour, Georgia, implemented a similar system with its new VAT rules coming into effect on October 1, 2021.

Vietnam

The new VAT rules in Vietnam came into effect on January 1, 2022, as a long period of proposals and counterproposals concluded. The proposed new collection mechanisms will prompt registration obligations for foreign online sellers. It is important to note that a planned February 2022 VAT rate reduction from 10% to 8% should not apply to the B2C sales of digital services by foreign online sellers.

Mexico

Mexico City’s Congress has enacted a plan to levy a 2% tax, effectively a type of Digital Services Tax (DST), on the commissions received by online marketplaces. The funds raised will go towards Mexico City’s infrastructure.

Paraguay

A new decree enacted in late December 2021 obliges foreign digital businesses to register for a non-resident income tax (INR) and pay an effective rate of 4.5% on a portion of their revenues. These new rules came into effect on January 1, 2022.

Bahrain

Another change but not in relation to the introduction of new rules rather a VAT rate change occurred in Bahrain. On January 1, 2022, the VAT rate in Bahrain doubled from 5% to 10%. In doing so, Bahrain became the second member state of the Gulf Cooperation Council to increase its VAT rate after Saudi Arabia tripled its VAT rate from 5% to 15% in July 2020.

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