VAT on Electronically Supplied Services in 2019
By Valeria Khmelevskaya, KBK Accounting
Along with the increase of the VAT rate from 18% up to 20%, the so called “Google tax” introduced previously as VAT on electronically- supplied services (“electronic services”) remains one of the hot topics in Russia. Starting from 2019, foreign entities rendering B2B electronic services to Russian clients are also obliged to register with the Russian tax authorities. Previously, this obligation existed for B2C service providers only.
The list of services is provided in Article 174.2 of the Russian Tax Code and includes, inter alia, the provision of rights to use software and databases via the internet, including remote access and updates; internet advertising services; providing access to platforms, search engines, etc.
Based on recent interpretations by the Russian tax authorities, similar services which are provided via any other automated systems may qualify as electronic as well.
The registration must be effected online via the so called “VAT offce”. Upon tax registration the foreign company receives Russian tax number (INN) and is obliged to submit quarterly VAT returns and pay the relevant VAT in due time. In practice, this might require the hiring of Russian qualified accountants as this is usually a routine function for them.
The new rules also cover the intragroup transactions between foreign entities and their Russian subsidiaries: license agreements, Software as a Service (SaaS) agreements, etc. Notably, even if some license arrangements are VAT-exempt due to special rules, the obligation for tax registration would still exist.
There may be various liability grounds for foreign service providers (for non-registration, non-reporting, omission of tax payments, etc.). More real, however, are the risks for the Russian partners as they may suffer additional tax charges as the result of denial of VAT offsets and costs for profits-tax purposes. Such denial may be the “sanction” for working with a non-compliant foreign entity.
Hence, it is important to review cross-border arrangements, both intragroup and with third parties, if they foresee a supply of electronic services. For arrangements with third parties, one should ensure that the relevant foreign entity undergoes the tax registration. Tax caveats and grossup provisions may be introduced to the agreements and alternative service providers should be considered for cases when the “third-party provider” refuses the registration.
Valeria KhmelevskayaKBK Accounting, Moscow, Russia
T: +7 495 662 33 30
KBK Accounting is a reputable outsourcing firm and provider of a wide range of services, including tax accounting and bookkeeping, tax advisory, reporting and compliance, HR and interim management.
Valeria Khmelevskaya is a Partner, lawyer and tax consultant admitted to practice in Russia. She has over 17 years of consulting in matters of Russian and international tax law. Ms. Khmelevskaya is also the Deputy Chair of the Committee for Taxes, Reporting and Controlling of the German-Russian Chamber of Commerce (AHK) and recommended attorney of the Austrian Foreign Trade Center Moscow (Österreichische Außenhandelsstelle Moskau).
Published: Indirect Taxes, No. 08 Spring 2019 l Photo: phonlamaiphoto - stock.adobe.com