Update on VAT on Electronically Supplied Services
By Valeria Khmelevskaya, KBK Accounting
Starting from 2019, new rules for calculation and paying VAT were introduced for foreign B2B providers of electronically supplied services (ESS), foreseeing obligatory tax registration and direct VAT payment via VAT-offce, available under lkioreg.nalog.ru/en. The previously applied reverse-charge procedure is not possible based on the current provisions of the Russian Tax Code.
ESS are listed in Article 174.2 of the Russian Tax Code and include a variety of services being rendered via internet, inter alia licensing of software, databases, their updating and customisation, so that intercompany license agreements, SaaS or even supply agreements (e.g. supply of equipment with the software uploads via the internet) could fall under that regulation. Hence, initially aimed at digital businesses, these rules de facto refer to the larger group of foreign entities.
Complications were caused by clarifications given by authorities stating that foreign entities providing for other (non-ESS) services should pay VAT directly, as well as lack of clarity on applicable VAT rates (16.67% or 20%) and some other issues.
The new rules and the clarifications caused a strong negative reaction among businesses, especially foreign MNEs active in Russia. Nonetheless, the Russian Federal Tax Service made a significant step to support business by issuing the Letter of 24 April 2019, No. SD-4-3/7937@, de facto allowing the application of the previous reverse-charge procedure under the condition of a tax registration of a foreign service-provider in Russia.
In this regard, the leading business associations of foreign investors in Russia recently proposed a series of amendments aimed at improving the existing legislation. In response, the Russian tax authorities confirmed their readiness to uphold the amendments to the legislation. There are many various proposals under discussion, among them exclusion of intercompany ESS from the scope of the new rules.
Valeria KhmelevskayaGGI member firm
Auditing & Accounting, Tax
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 Khmelevskayais a Partner, Lawyer, and Tax Consultant admitted to practice in Russia. She has over 20 years of experience of consulting in matters of Russian and international tax law. Ms. Khmelevskaya is also the Deputy Head of the Management Board and the Chair of the Committee for Taxes and Financial Reporting of the German-Russian Chamber of Commerce (AHK) and recommended attorney of the Austrian Foreign Trade Centre Moscow (Advantage Austria).
Published: Indirect Taxes Newsletter, No. 10 Spring 2020 l Photo: vaalaa - stock.adobe.com