Russia's value-added tax for electronically supplied services

Legislative effective date

Jan. 1, 2017

Name of tax

Value-added tax

Statute of limitation

Three years prior to period under audit

Standard rate of VAT

18 percent

Electronic supplies

There has to be a payment to define that a supply of services has taken place, but with that in mind, the following are the most common categories of electronic services; this is not an exhaustive list:

• Software as a service (SaaS)
• Data hosting
• Downloadable software and software updates
• Digital market places
• Electronically accessed books, music and videos
• Online gaming
• Subscriptions to access digital content
• Live webcasts
• Email services
• Online discussion forum
• Mobile phone applications

Excluded from the list is the following:

• Internet access

Registration

Foreign businesses are required to register for VAT in Russia for sales of digital services to individuals (B2C).

Customer identification

Russian legislation does not categorize recipients as B2B or B2C, but rather notes that services can be provided to one of the following recipients:

• Individuals who are not individual entrepreneurs
• Individual entrepreneurs
• Organizations (including Russian legal entities)

Of the above, if services are provided to individual entrepreneurs or organizations, they will effectively be treated as B2B in nature and general B2B rules apply. Those rules require the B2B recipient to self-assess VAT under the VAT withholding mechanism, which can have an impact on the amount received by the supplier.

In order to verify whether or not the transaction is B2B or B2C, it is recommended to do the following:

• Request all customers provide confirmation of whether or not they are a business
• Obtain tax registration number / state registration number of entrepreneur
• Verify the Tax Identification Number through the Federal Tax Services (FTS) website
• In situations where the registration numbers are not confirmed on the website, the transaction should be treated as B2C

There are no exemptions for certain types of organizations like, for example, nonprofit entities, charitable organizations or universities.

Customer location

In order for VAT to be charged in a B2C transaction, it is necessary to determine that the customer is in Russia by satisfying any one of the following tests.

• The place of residence of the buyer is in the Russian Federation
• The bank where the buyer opened an account to pay for services or the operator of electronic funds through which the payment is made by the buyer is located in the Russian Federation
• The network address of the buyer used when purchasing services is registered in the Russian Federation
• The international code of country of the telephone number used to purchase or pay for services is assigned to the Russian Federation

Supplier identification

Foreign suppliers are required to register in Russia if the supplies are made in a B2C arrangement. However, if an intermediary or agent is involved in the distribution of the services, then that party has the VAT registration and filing obligations, and the foreign supplier is not required to register.

Procedural matters

VAT registration is required to be completed within 30 days after the start of the taxable activity (B2C).

The registration process can be completed on line, through an agent or by post.

Service providers providing digital services in Russia are required to register with the "Interregional Inspectorate of the Federal Tax Service of Russia No. 7" for the largest of taxpayers.

It is not necessary to raise VAT invoices or maintain books and records in regard to digital services as the VAT is accounted for in respect to the payment.

VAT returns and payments should be filed quarterly by the 25th day of the following month.

It is recommended that digital service providers maintain the following information:

• Transaction detail, including analysis as to B2B or B2C nature
• Support for location of the customer
• Support for VAT received and paid to FTS

Penalties apply for noncompliance, whether non-deliberate (20 percent of the tax owed) or deliberate (40 percent of the tax owed).

An equivalent scheme to a voluntary disclosure is available to enable taxpayers to correct errors without incurring a penalty.