VAT 2019. The latest for foreign companies providing e-commerce services in Russia

By Olga Palkina, business development manager

Federal Law N 244-FZ dated July 03, 2016 provides that from January 01, 2019 onwards foreign companies providing E-services to individuals and legal entities in the Russian Federation will be required to calculate and pay VAT on their service fees themselves. This obligation to calculate and pay VAT had been fulfilled up until January 01, 2017 by tax agents, i.e. Russian organizations and individual entrepreneurs purchasing E-services from foreign companies.


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Olga Palkina
business development manager

Who will be affected? 

E-services include: 

  • Provision of rights to use programs; 
  • Advertising services and sites; 
  • Technical, organizational, information and trading platforms; 
  • Site support; 
  • Data storage and processing; 
  • Provision of computing power; 
  • Hosting; 
  • Domain names, access to search engines, e-books, music, images; 
  • Statistics. 

E-services do not include:

  • Orders placed online when orders are not delivered through the internet; 
  • Programs and databases on physical media; 
  • Email consultations; 
  • Internet access. 

An exhaustive list of E-services is provided in Article 174.2(1) of the Russian Tax Code.

What needs to be done?

From January 01, 2019 onwards, foreign organizations providing services in electronic form will be required to:

  • Register with the Federal Tax Service as a taxpayer
  • Obtain a taxpayer identification number (INN)
  • Pay tax
  • Submit tax return quarterly

Applications for registration with Russian tax authorities may be submitted by registered mail, online through the website of the Federal Tax Service of Russia (the website has an English version). Alternatively, we would be pleased to handle this formality on your behalf

If a foreign company is already registered with the Federal Tax Service, pays VAT and submits reports on services for individuals, then such companies will not be required to register again, but they will need from January 01, 2019 to pay VAT and submit reports on services for legal entities, as well as duly draw up documents entitling Russian customers to claim VAT deductions.

Exempt from VAT

The sale in Russia of exclusive rights to programs for computers, databases, right to use intellectual property under a license agreement, inventions, utility models, industrial designs, integrated circuit topographies, know-how still remains exempt from VAT [2, Article 149(2(26))]. This exemption will also apply to foreign organizations required to register with tax authorities under Article 83(4.6) of the Russian Tax Code.

Agency

If a foreign company provides services in Russia through an agent or agents , that participate in payments, then the obligation to calculate and remit VAT to the budget will be assumed by the intermediaries who will become, from a tax law standpoint, tax agents.

If several intermediaries are involved in payments, , then the intermediary through whom payments with customers are directly made will be the tax agent. If this intermediary happens to be a foreign company not registered with Russian tax authorities, such company will be required to register with Russian tax authorities.

So, if a foreign company provides some of its E-services through intermediaries/agents, then the agents will calculate, pay and report on VAT for those services.

Payment of tax directly by foreign companies

Tax base is the cost of services taking into account the tax amount calculated based on the price at which they are actually sold.

Tax base is determined on the last day of the tax period in which payment (partial payment) is received.

When the tax base is determined in a foreign currency, the currency amount is converted into rubles at the exchange rate of the Central Bank of Russia effective on the last day of the tax period in which the payment (partial payment) for services rendered is received.

Tax amount is the amount of the tax base corresponding to the effective tax rate of 16.67%.

Payment of tax. Foreign companies do not need to open a bank account in a Russian bank to pay taxes. Taxes may be paid from bank accounts outside the Russian Federation.

VAT overpayment will be refunded (offset) to foreign sellers in accordance with Article 78 of the Russian Tax Code, but such refunds can be transferred only to accounts opened with a Russian bank.

Quarter is the tax period for VAT.

VAT payment must be made no later than the 25th of the month following the reporting quarter.

Documentation

No VAT-invoices, purchase ledger, sales ledger, register of received and issued VAT-invoices are compiled for E-services provided by foreign companies [2, Article 169(3.2)]. But once a foreign company is registered with the Federal Tax Service of Russia, the following details must be specified in documents for sale of services: taxpayer identification number (INN), tax registration code (KPP) and the exact company name. When these mandatory details are specified in documents, Russian customers are entitled to deduct the VAT paid by the foreign company, and they do not need to include the tax amount in the cost of services.

VAT rate

VAT rate for E-services will be 16.67% in 2019.

We are pleased to provide full legal support for e-commerce.