Contributed by Vladislav Donchenko, tax practice partner in Lex Alliance law company, Russia

Generally selling of movable goods to other countries is not subject to the VAT. This approach is applied on the worldwide manner. However, when you sell services to the Russian customers, Russian VAT could arise.

Russian tax law provides that foreign companies are subject to the Russian VAT if place of sale is recognized as Russia. There is a list of services (article 148 of the Russian tax code), which are related to the following rule: place of sale should be determined in relation to the customer’s jurisdiction of incorporation. Therefore, if the customer is a Russian legal entity or individual entrepreneur, such transaction will be subject to VAT.

List of services which are subject to the Russian VAT if the customer is incorporated in Russia:

  • Grant of rights to patents, licenses, trademarks, copyrights, etc.;
  • Development of software and databases, their adaptation and modification;
  • Consulting, legal, accounting and auditing services;
  • Advertising and marketing services;
  • Engineering services: engineering and consulting services for the preparation of the production and sales process, preparation for the construction and operation of industrial, infrastructure, agricultural and other facilities, preparation of feasibility studies, design and development and other similar services;
  • Information processing services: services for the collection and generalization, systematization of information arrays and providing the user with the results of processing this information;
  • Services for the provision of personnel to perform work at the buyer's place of business;
  • Renting out movable property (excluding aircraft engines and other aviation technical property, as well as land vehicles);
  • Agency services to attract a contractor providing the listed services.

Contract price for listed services should include the amount of the Russian VAT 20%. Otherwise, foreign provider of services will receive only 80% of its fee because the Russian customers are liable to withhold Russian VAT from the foreign provider’s fee as tax agents.

The Russian legal entities and individual entrepreneurs, which are not exempted from VAT, have the right to refund withheld VAT. VAT exempted customers could deduct withheld VAT against their income for the purpose of the profit tax.

Lex Alliance tax team would be glad to assist you to avoid unexpected Russian tax risks and build tax safety profitable business.

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