Central Asian countries taxing cross-border supplies of digital services

Two major Central Asian countries -  Uzbekistan and Kazakhstan - revealed plans to extend their VAT systems to the digital services supplied by foreign businesses in late 2019. Uzbekistan did so on January 1, 2020, while Kazakhstan - initially mirroring their neighbour's approach - now plans to amend their VAT regime in January 2021.

The region had not witnessed much movement until then with only Azerbaijan, across the Caspian Sea, being the closest tax jurisdiction to have made any amendments to their tax code to bring foreign-supplied digital services into scope.

Rules in Azerbaijan for foreign suppliers of digital services to pay VAT at the place of consumption have been in place since January 2017. However, the burden of the collection is currently with the local card issuers.

Here we outline some of the characteristics of the Uzbekistan and Kazakhstan proposals.

Uzbekistan

Date of introduction: January 1, 2020

Tax rate: 15% (VAT) - reduced from 20% in October 2019

Foreign suppliers of affected digital services must register for the collection and remittance of VAT on the sales they have in Uzbekistan. The rules were introduced on January 1, 2020, and foreign suppliers with digital sales to customers in Uzbekistan can register online here: http://tax.uz/en 

By late September 2020, a total of 19 foreign suppliers had registered to collect and remit VAT on their sales in Uzbekistan. The list is available here: https://tax.uz/en/site/companys 

At the same time Uzbekistan's Ministry of Finance also released a lengthy statement on the importance of the digital economy to the country's continued growth.

The place of supply of affected digital services are deemed to be in Uzbekistan if:

• The customer’s “place of living” is in Uzbekistan
• The customer’s bank account used for the payment of these services is opened is in Uzbekistan.
• The location of an electronic money operator through which the customer may make a payment for the services is located in Uzbekistan.
• The customer’s IP address is registered in Uzbekistan.
• The international country code of the telephone number used to purchase or pay for the services is assigned to Uzbekistan.

Affected digital services include the following (non-exhaustive list):

• License and updates of software
• Cloud computing
• e-books
• Multimedia services
• Web advertising
• Web hosting
• Web-based platforms
• Remote data storage

Kazakhstan

Planned date of introduction: January 1, 2021

Tax rate: 12% (VAT)

According to the proposed changes, a foreign digital service supplier with customers in Kazakhstan will be required to register for VAT. These suppliers will also be obliged to regularly remit VAT on their sales in Kazakhstan based on the turnover of services rendered.

Affected digital services would include (non-exhaustive list) the provision of the following services via the internet:

• Computer programs
• Advertising services
• Services involving the posting of an offer to acquire (sell) goods (works or services) or property rights online
• Technical, organizational, informational or other means to enable transactions between sellers and buyers
• Maintenance of a commercial or personal presence online
• Storage and processing of information online
• Domain names and hosting services
• Services for the administration of information systems and sites online
• Maintenance of statistics on internet sites
• Sales of e-books, graphics, or music

Azerbaijan

Date of introduction: January 1, 2017

Tax rate: 12% (VAT)

Rules in Azerbaijan for foreign suppliers of digital services to pay VAT at the place of consumption have been in place since January 2017.

However, the rules differ from those proposed in Kazakhstan and Uzbekistan as the burden of the collection is currently with the local card issuers. We will, of course, update you if there is a change to this obligation.