Contributed by Vladislav Donchenko, tax practice partner in Lex Alliance law company, Russia
From 2022, a Russian buyer will be recognized as a tax agent for VAT when a non-Russian company sells goods, works, services to a Russian entity or an individual entrepreneur, if the territory of the Russian Federation is recognized as a place of sale.
This rule will work regardless of whether the foreign entity has a Russian TIN.
The following services are recognized as sold on the territory of the Russian Federation if the buyer is registered in the Russian Federation:
- transfer of rights to objects of intellectual property;
- services for the development of software and databases, their adaptation and modification;
- electronic services;
- consulting, legal, accounting, auditing, advertising, marketing services;
- information processing services
- engineering services
- provision of labor for employees in the event that employees work in the place of business of the buyer of services;
- renting out movable property
- agency services to attract buyers of the above services
Important! The changes do not apply to non-Russian entities providing electronic services to Russian customers via the Internet. Such foreign entities will still be required to pay VAT on their own.
Implications for foreign entities:
Foreign entities that already have a Russian TIN will be exempted from paying Russian VAT. The VAT amount will be paid by the tax agent (Russian buyers)
For foreign entities that do not have Russian VAT, the rules for taxing VAT on sales to Russian buyers will not change.
For non-Russian entities that provide electronic services to Russian customers, including the transfer of software via the Internet, the VAT tax rules will not change.
Our tax team would be glad to discuss with you these Russian tax amendments and assess possible tax implications and risks.