New indirect tax collection procedure within the Russia, Belarus and Kazakhstan Customs Union.
Legal Update No. 156.
Goltsblat BLP advises that a new procedure for collecting indirect taxes (VAT and excise taxes) shall apply for mutual export and import operations within the Customs Union of Russia, Belarus and Kazakhstan.
Previously, the procedure for collecting indirect taxes on exports and imports between the three countries was governed by the following bilateral treaties:
between Russia and Belarus - the Agreement on the Principles for Collection of Indirect Taxes upon Export and Import of Goods, Work Performed, Services Rendered dated 15 September 2004 and the Protocol on the Procedure for Collection of Indirect Taxes on Work Performed and Services Rendered dated 23 March 2007;
between Russia and Kazakhstan - the Agreement on the Principles for Collection of Indirect Taxes in Mutual Trade dated 9 October 2000;
between Russia and Belarus - the Agreement on the Principles for Collection of Indirect Taxes upon Export and Import of Goods (Work) dated 02 February 1999.
Pursuant to Resolution of the Interstate Council of the Customs Union (the supreme authority) No. 36 dated 21 May 2010, the Joint Statement of the Presidents of Russia, Belarus, Kazakhstan on Enactment of the Agreement on the Customs Union Customs Code dated 5 July 2010, the following agreements are, despite some legal issues concerning compliance with the adoption procedure by the countries, deemed to become effective from 1 July 2010 (in respect of Russia and Kazakhstan) and from 06 July 2010 (in respect of Russia, Belarus, and Kazakhstan):
the Agreement on the Principles for Collection of Indirect Taxes upon Export and Import of Goods, Work Performed, Services Rendered within the Customs Union dated 25 January 2008 and the Protocol on Amendments to this Agreement dated 11 December 2009;
the Protocol on the Procedure for Collection of Indirect Taxes and the Mechanism for Control over its Payment upon Export and Import of Goods within the Customs Union dated 11 December 2009;
the Protocol on the Procedure for Collection of Indirect Taxes on Work Performed and Services Rendered within the Customs Union dated 11 December 2009;
According to this Resolution, the above bilateral treaties apply only in as far as their provisions do not conflict with the above tripartite Agreement on the Principles for Collection of Indirect Taxes upon Export and Import of Goods, Work Performed and Services Rendered within the Customs Union dated 25 January 2008. It has been proposed that the respective parties take measures to terminate the above bilateral treaties.
The key amendments with respect to the previous procedure for collection of indirect taxes are listed below:
The tripartite Agreement dated 25 January 2008 applies to all goods originating both in Russia, Belarus, and Kazakhstan and in other countries, while the Agreement between Russia and Belarus dated 15 September 2004 applied only to movement of goods manufactured in Russia or Belarus.
Taxes on imported goods will be collected by tax authorities of the goods destination country.
Companies exporting/importing goods to/from Kazakhstan will now be required to provide a set of documents similar to that for goods exported/imported to/from Belarus. An application for import of goods and payment of indirect taxes has been added to the list of documents required for export/import transactions to/from Kazakhstan (to replace the customs declaration).
The new procedure establishes unified time limits for providing tax authorities with supporting documents for application of a zero rate in respect of export to both Belarus and Kazakhstan: now such documents are to be submitted within 180 calendar days of the shipment date (compared to the 90 day period that used to apply for goods exported to Belarus).
There are new rules for determining the tax base for imported goods. The VAT tax base relating to imported goods will be determined on the basis of the value of the goods purchased and the excise taxes on excisable goods (the provision on inclusion of transport and insurance costs, etc. in the purchase price has been excluded).
There are special provisions relating to application of a zero rate to export and payment of VAT on goods imported under lease agreements, barter agreements, and commodity loan agreements.
In respect of work performed and services rendered under a contract with a resident of Kazakhstan, VAT is collected in a manner similar to that applicable to relations with Belarus, only with some additions. Moreover, the list of services taxable at the buyer's location has been extended, compared to the list provided for by the Protocol between Russia and Belarus dated 23 March 2007, to include design services, development and technological work, software and database development, localisation, modification and support services.
If you are interested in the above amendments, we would be pleased to provide you with a separate presentation containing a more detailed analysis of the practical implications.
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