VAT on Electronic Services: EY’s Practice and Tax Inspections based on Bank Payments

EY’s practice

At the end of 2024, we observed an emerging trend in tax administration. International companies operating in e-commerce, information technology, and entertainment (hereinafter referred to as “internet companies”) began receiving notifications from the tax authorities of the Republic of Uzbekistan (hereinafter referred to as “Uzbekistan”) regarding the payment of VAT on electronically supplied services (hereinafter referred to as “electronic services”) to individuals and individual entrepreneurs in Uzbekistan. These notifications are issued to both foreign companies registered as VAT payers for electronic services and those that have not been registered.

As a reminder, according to the website https://tax.uz/en, more than 60 internet companies are currently registered as payers of VAT on electronic services. As we understand, the tax authorities are reviewing payments made with bank cards and, if the name of an international internet company is found in the payment description, they compare the payment amounts with the submitted VAT reports on electronic services. Given this trend, we consider it important to remind you of the VAT rules for electronic services and the taxpayer registration procedure for foreign internet companies.

Below, we provided brief comments regarding the taxation of internet companies in Uzbekistan.

General provisions

Since 1 January 2020, internet companies are required to register and pay VAT on electronic services in Uzbekistan (if the place of supply of electronic services is deemed to be Uzbekistan). Electronic services subject to the above rules include the following:

• granting rights to use software (including on-line games), as well as databases, their updates, and additional functionalities provided via the Internet, including by remote access;
• granting rights to use electronic books (editions) and other electronic publications, informational and educational materials, graphic images, musical works with or without text, audiovisual works, including by providing remote access to them for viewing or listening via the Internet;
• providing advertising services on the Internet, including using software for computers and databases operating on the Internet, as well as providing advertising space and time for ads on the Internet;
• providing services for placing offers to purchase (sell) goods (services) and property rights on the Internet;
• and other services.

Non-residents providing electronic services to legal entities are not required to register and pay VAT in Uzbekistan. Instead, Uzbek legal entities are required to independently pay VAT using the reverse charge mechanism (or withholding, depending on the contractual terms).

Online marketplaces and platforms

The definition of digital services includes providing technical, organizational, informational, and other capabilities via the Internet, using information technologies and systems to establish contacts and conclude transactions between the sellers and the buyers (including providing an online trading platform or marketplace where potential clients offer their prices through automated procedures, and parties are informed of sales through automatically generated messages).

Thus, services of online marketplaces and platforms may be subject to VAT (if provided to Uzbek individuals and individual entrepreneurs). If electronic services are provided by non-residents through non-resident intermediaries collecting money from Uzbek individuals and individual entrepreneurs based on commission, agency, and other similar agreements with the supplier, such foreign intermediary entity may be deemed a taxpayer for VAT purposes and it is required to independently calculate and pay VAT.

Registration procedure

The relevant notification for VAT registration must be submitted by internet companies to the tax authorities via the online platform (website https://tax.uz/en). The VAT registration application submitted via the platform is required to include the following information:

• Company’s name;
• Address;
• Website;
• Official email address;
• Country of registration;
• Other identifying information;
• Information about the services provided;
• Information about the authorized person.

Additionally, the application must include an extract from the register of legal entities of the country where the non-resident is registered (or another document confirming the legal status of the non-resident in its country).

Authors:

• Doniyorbek Zulunov
• Sergey Bachmanov
• Maryna Tarnavska