Russian VAT will be due from foreign companies supplying electronic services to customers in Russia

18.07.2016

Legal Update No. 568

Goltsblat BLP advises that the so-called Google Tax Law on taxing certain operations performed online (the Law) has been passed1.

From 1 January 2017, Russian VAT will apply to electronic services provided to purchasers in Russia, such as access to content, placement of announcements, information storage, provision of electronic trading platforms, hosting, etc.

Though the Law puts transfer of rights to computer software and databases on a par with electronic services, at the moment the Russian Tax Code exempts this from VAT, provided the transfer is based on a licensing agreement. Even so, foreign companies are likely to lose this exemption in the near future.

One new rule is that 15.25% of all sums received by foreign companies for rendering electronic services to individuals resident in Russia will go to the state as VAT (in other words, the actual sales price is presumed to include 18% Russian VAT). The tax will be paid by the company that supplies the customer directly, be it in its own interest or on an agency basis.

Both foreign companies and agents with no presence in the Russian Federation will have to register with the Russian tax authorities, provide information (including a VAT tax return) via the official Federal Tax Service’s web-site and pay VAT after the end of each quarter by the 25th of the next month. They will not, however, have to issue VAT invoices or keep purchase and sales ledgers.

The Law grants tax authorities special powers during regular office tax audits, including the right to demand additional documents from the taxpayer (such as registers of operations showing amounts charged for service) and from paying agents (such as the national card payment system, payment clearing centres and telecoms providers) about payments made. True, document demands from paying agents are only possible with the consent of the head or deputy head of Russia’s Federal Tax Service.

The Law comes into effect on 1 January 2017.

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1 Federal Law No. 244-FZ of 03.07.2016 “On Amendments to Parts One and Two of the Tax Code of the Russian Federation”

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