New VAT Rules for Russian IT Companies
By Valeria Khmelevskaya, KBK Accounting
In the course of the current tax reform aimed at a review of taxation of IT businesses, IT companies may obtain certain profit tax reductions and a number of other incentives (e.g. reduction of tariffs for social security contributions which are payable in Russia by the employer only). The current reform also covers VAT. In particular, the VAT exemptions have been revised.
Currently, the realisation of exclusive rights to software and databases, as well as granting software and database licenses, are exempt from Russian VAT, provided that such license rights are transferred based on a license agreement. Starting 01 January 2021, this exemption will be extended to the updates, and additional functionality and provisions of the said rights, via remote access over the internet.
At the same time this exemption shall apply only to IT-companies, included in the Unified Registry for Russian Software and Databases, and there are additional requirements to be fulfilled for inclusion into the Registry. For example, only Russian owners of software, subject to certain conditions, may be included into the Registry and apply the exemption.
Under the new VAT rules, no VATexemption shall apply to rights subject to transfer if they provide the opportunity to distribute advertising information on the internet, and/or gain access to such information and/ or place offers on the purchase/sale of goods (works, services), property rights on the internet, and/or search for information about potential customers and/or conclude transactions.
The new rules may require a reassessment, at least from a commercial point of view, of the business model of certain IT companies. In particular, these rules may affect small and mid-sized businesses, purchasing foreign software and databases or related licenses. Also, end-user customers may face a price increase. The aim to create a tax haven for IT companies may have the opposite consequence: more expensive software may turn into an obstacle for fast digitalisation.
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 Khmelevskaya is a Partner, lawyer and tax consultant admitted to practice in Russia. She has over 17 years experience 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 Centre Moscow (Österreichische Außenhandelsstelle Moskau).
Published: Indirect Taxes Newsletter, No. 11 Autumn 2020 l Photo: scaliger - stock.adobe.com