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New VAT regulations in Russia for e-services

Starting from January 1 2019, foreign companies providing e-services to individual entrepreneurs and legal entities will have to pay VAT to the budget of the Russian Federation directly. They need to register with the Federal Tax Service by February 15 2019.

Computer transaction
More digital transactions will be subject to VAT

What are “e-services”?

Pursuant to Article 174.2 of the Tax Code of the Russian Federation, e-services are the services rendered online (via Internet). They include (the list below is non-exhaustive):

  • granting of the right to use software programs, graphics, and videos online,
  • provision of hosting services,
  • provision of storage space,
  • provision of domain names,
  • administration of information systems,
  • and more

E-services do not include sales of goods, when the order is placed online, but the goods are delivered without using the web, sales of computer software programs on physical media, consulting services via email, and granting of Internet access.

It is important to note that the new regulations also applies to e-services rendered by parent companies to their subsidiaries in Russia. Granting access to SAP or other finance management software used by the companies of the same company group would be a typical example of such e-services starting with 01.01.2019.

What shall be done by foreign companies starting from 01.01.2019?

Under the new rules, foreign companies are obliged to register with the Federal Tax Service of the Russian Federation to provide tax declarations and to pay VAT to the budget of the Russian Federation.

If a company started the provision of e-services prior to 1 January 2019, it has to apply for registration with the Federal Tax Service of the Russian Federation by 15 February 2019 at the latest.

If a company starts the provision of e-services in 2019, the application term is defined as not later than 30 calendar days from the date of starting the provision of such services.

After a foreign company is registered with the Russian tax authority, its details will be included in the register on the portal of the Federal Tax Service of the Russian Federation “Internet company’s VAT office” (https://lkioreg.nalog.ru/ru/registry). According to the information from this source, by the middle of December 2018, 187 foreign companies have been registered with the Federal Tax Service of the Russian Federation. These are mostly the companies rendering e-services to natural persons, which was already obligatory since 2017.

The VAT rate for the e-services is stated as 16,67 %.

The foreign company must submit a VAT declaration in electronic form to the tax authority via its account on the official website of the Federal Tax Service of the Russian Federation and to pay VAT to the budget accordingly. A Russian company purchasing e-services from foreign suppliers may deduct VAT strictly subject to the condition, that the foreign supplier is registered with the Russian tax authority accordingly.

In the meantime, the documentation execution criteria should be scrupulously ob-served. Thus, for example, the VAT amount and the foreign company’s INN (Taxpayer Identification Number) must be specified in the billing documents.

It should be taken into consideration that even though the legislation provides certain VAT exemptions (for instance, a license contract is subject to special regulation), a foreign company will nevertheless have to register with the Russian tax authorities for these purposes and to provide VAT declarations.

The new regulation enforcement practice will not be perfectly clear until early 2019. We recommend verifying the contracts that have already been signed or are supposed to be concluded with the Russian companies in order to figure out whether your company will have to register with the Russian tax authorities in 2019.

Need more information?

Contact our expert SWILAR LLC via the Expert Directory!

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