In early 2024, over 2,600 internet service providers (ISPs) in Ukraine operated under the simplified taxation system. Currently, their right to apply this system is restricted due to a decision by the State Tax Service (STS), which has adversely affected the fixed broadband internet market.
In response, the Better Regulation Delivery Office (BRDO) has appealed to the Ministry of Finance of Ukraine to issue a general tax consultation. The aim is to affirm ISPs’ right to utilise the simplified taxation model in accordance with legislation, judicial practice, and the official clarification from the National Commission for the State Regulation of Electronic Communications, Radio Frequency Spectrum and Postal Services (NCEC) regarding the classification of electronic communication services.
What is the issue?
In 2024, the STS effectively prohibited ISPs from using the simplified taxation system. This practice contradicts the Tax Code of Ukraine and the Law of Ukraine “On Electronic Communications”. The STS’s position also disregards the official clarification from the NCEC, which confirmed that internet access services are not among the types of services for which the simplified taxation system is prohibited.
The State Regulatory Service of Ukraine did not support the STS’s actions and has already appealed to the Ministry of Finance to revoke the unlawful clarification.
What are the consequences for the market?
According to BRDO’s calculations based on regulatory reporting data (Form T-1 “Telecommunications Sector”), revenues in the fixed internet market decreased by 30% in the fourth quarter of 2024, marking the lowest level since the third quarter of 2022.
How are market players responding?
ISPs are actively defending their rights in court. Judicial practice across the country confirms their position:
- 70% of cases have been won by providers in first-instance courts (according to the Internet Association of Ukraine and the Association of Rights Holders and Content Providers).
- 58 decisions have already come into legal force after appeals or cassations.
Courts not only restore the right to the simplified taxation system but also oblige the state to compensate for damages caused by unlawful actions. Over UAH 200,000 has already been awarded in compensation.
What is BRDO’s role?
The BRDO team has experience in optimising regulatory relations, implementing European integration reforms, and facilitating business operations in the electronic communications sector. BRDO contributed to the development of the new Law of Ukraine “On Electronic Communications” and the draft National Strategy for the Development of Electronic Communications, as well as conducting several industry studies.
Based on our expertise, we emphasise the need to preserve the simplified taxation system for ISPs. In early October 2024, BRDO, along with several organisations, issued a statement opposing the STS’s actions.
At the end of 2024, BRDO presented an analytical dashboard “Fixed Internet Access Services Market” analysing the industry over recent years.
What’s next?
BRDO urges the Ministry of Finance to promptly adopt a general tax consultation confirming the right of individual entrepreneurs and legal entities to use the simplified taxation system in the fixed internet access market.
We also call on the STS, NCEC, Ministry of Digital Transformation, and the State Regulatory Service to support this initiative and uphold transparent operational rules and legal certainty.