21.3.2017

Changes to Taxation of Digital Services in Russia

In this legal bulletin we would like to draw your attention to the amendments that have been made to the Tax Code that entered into force in January 2017 regarding value added taxation of digital services rendered by foreign companies in Russia. These amendments have been introduced by the Federal Law No. 244-ФЗ dated 03.07.2016 “On the amendments to Parts One and Two of the Tax Code of the Russian Federation”.

What Has Changed

From now on, foreign companies providing services to Russian consumers by digital means via the Internet must: (i) apply for registration with the Russian Tax Authorities and (ii) charge and pay Russian value added tax (VAT).

Whom It Concerns

Foreign companies in the e-commerce industry operating on the Russian market (e.g. Google, Microsoft, Apple, Netflix, etc.). The aforementioned companies have registered within the Russian Tax Authorities in January-February 2017.

Internet services that are considered taxable activities:

Internet services that are not considered taxable activities (exhaustive list):

Tax is payable in any of the following circumstances:

Registration with the Tax Authorities

Foreign companies shall register with the Russian Tax Authorities within 30 days of starting their business activities. The deadline for registration for companies already doing business in Russia at the time of the new law’s enactment was 31 January 2017. Companies that have not registered by this deadline are advised to do so without delay.

If the company is doing business through a foreign company acting as agent, such agent will also need to register with the Tax Authorities. If a foreign company is doing business through a Russian agent, the Russian company is already registered with the Tax Authorities and will serve as the tax agent for the foreign company (i.e. will withhold and pay VAT for the foreign company).

PLEASE NOTE: registration with the Tax Authorities and payment of Russian VAT does not constitute a permanent establishment for the foreign company.

Document flow between the foreign companies and the Tax Authorities is handled through the company’s personal online account. Login credentials for the account are provided by the Tax Authority at the time of registration.

Tax Rate and Payment

The tax rate is 15.25%. Russian accounting rules for VAT are not applicable (i.e. no VAT invoices or purchase/sales ledgers are required).

The first tax period for the foreign companies is January to March 2017. The companies must provide VAT records and pay the tax no later than 25 April 2017.

Foreign companies cannot apply for VAT deductions in this case, however, they can apply to for tax credit/refund of excessively paid tax.

The Tax Authorities may conduct in-office inspections with regard to the calculation and payment of VAT, request information from a foreign company as well as use other means to levy the tax.

 

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