Since January 2017 a non-Russian company which provides digital services to Russian individuals (not registered as self-employed) is liable to pay VAT on its income as a Russian VAT taxpayer. If the services are provided to a Russian entity or a self-employed entrepreneur, the VAT is withheld by such buyers. Here we show you the details of the Russian VAT rules.
Federal Law № 244-FZ dated 3 July 2016 (hereinafter 244-FZ) came into force in January 2017. According to this law, sales of digital services to Russian entities and individuals (including individuals not registered as self-employed) are recognised as being performed on the territory of the Russian Federation, and are subject to Russian VAT. The amount of tax should be calculated at a rate of 15.25% on the income received for services provided.
A Russian individual (buyer of digital services) should be recognised as Russian if they meet at least one of the following criteria:
- Russia is recognised as the individual’s place of abode;
- the bank account used to pay for services is attributed to a Russian bank;
- the buyer’s IP address is registered in the Russian Federation;
- the international telephone code of the buyer’s telephone number used to buy services is attributed to Russia.
Description of digital services
According to the 244-FZ, the following services are recognised as digital and subject to VAT in Russia:
- provision of usage rights for software (including games) and databases via the internet;
- online advertising services;
- provision of services allowing consumers to buy goods or services directly from a seller over the internet (including online sales: stores, retailing and auctions);
- website support, granting access to websites for other network users and enabling modifications;
- storage and processing of information, if the provider of the information has online access to such information;
- real-time provision of computing performance;
- provision of domain names and hosting services;
- administration of information systems and websites;
- web search services;
- provision of usage rights to electronic books, information and educational materials, images, music and video via the internet;
- searching and providing information about potential buyers;
- provision of access to internet search engines;
- maintenance of statistics on websites.
The following services should not be considered digital services:
- sales of goods and services where goods and services ordered online are supplied (performed, rendered) without using the internet;
- sale or transfer rights to use of software (including games) and databases by using physical media;
- consulting services provided by email;
- provision of access to the internet.
Specific features of Russian VAT rules
Russian VAT rules for digital services cover different options for providing digital services. Services can be provided to Russian individuals not registered as self-employed as follows:
- Direct provision of digital services, collecting income directly from buyers. The digital services provider is recognised as a Russian VAT taxpayer. The amount of VAT on digital service income is calculated at a rate of 15.25% and transferred to the Russian budget.
- Using Russian and non-Russian intermediaries for the provision of digital services to Russian individuals and collecting the income from such services based on an agent, commission or other similar agreement. A Russian / non-Russian intermediary which acts based on an agent, commission or other similar agreement, and takes part directly in transactions with Russian individuals, will be deemed a tax agent and will be liable to calculate and collect VAT at a rate of 15.25% from the income received from a buyer of digital services. If the transactions regarding digital services are performed through more than one Russian / non-Russian intermediary, the Russian / non-Russian entity taking part directly in transactions with the Russian individuals will be deemed a tax agent, regardless of any special agreement with the digital services provider. Such intermediary will be liable to calculate and collect VAT at a rate of 15.25% from the income received from the buyer of digital services.
Providing digital services to Russian entities and self-employed entrepreneurs is another option. If a non-Russian entity provides digital services to Russian entities and self-employed entrepreneurs, such buyers of digital services are considered tax agents and are liable to calculate and withhold VAT at a rate of 15.25% from the income transferred to the digital services provider.
Tax compliance requirements
According to the 244-FZ, non-Russian digital service providers and non-Russian intermediaries recognised as VAT tax agents have to adhere to the following tax compliance requirements:
- complete registration on the website of the Russian tax authorities within 30 calendar days after initiating the provision of digital services, and receive a personal online account which should be used to communicate with the Russian tax authorities, submitting tax documents and exchanging other information;
- submit VAT tax returns by using personal online account within 25 days of the end of the VAT tax period (3 months). The same deadlines apply for tax payments;
- fill in special registries with information about each sale of digital services. The registry form that should be used was published in the Order of the Russian Tax Service as of 29.08.2017 № ММВ-7-15/693@.
Responsibility for violations of new Russian VAT rules
A non-Russian digital service provider or a non-Russian intermediary will lose its access to the personal online account for 12 months if at least one of the following violations occurs:
- submission of false information to the tax authorities in the registration claim;
- failure to comply with Russian tax authority requirement to pay VAT, penalties and fines within 12 months;
- failure to comply with the Russian tax authority requirement to submit documents within 3 months;
- violation of deadlines for submitting VAT tax returns within 6 months.
Penalty for failure to register on the website of the Russian tax authority:
- violation of registration deadlines – 10,000 roubles (roughly EUR 140);
- conducting business without registration – 10% of income received, but no less than 40,000 roubles (roughly EUR 570).
Penalty for the failure to submit a VAT tax return: 5% of the unpaid amount of the tax according to the unfiled tax return for each complete or incomplete month starting from the deadline. However, the fine may not exceed 30% of the unpaid amount of the tax and be no less than 1,000 roubles (roughly EUR 14).
Failure to comply with the VAT payment liability leads to a penalty amounting to 20% of the unpaid tax amount.
If you would like to know more about the Russian VAT rules, please visit the homepage of Althaus Group, the exclusive representative of WTS Global in Russia.