Valeria Khmelevskaya
by Valeria Khmelevskaya
Taxation of electronically supplied services (ESS) in Russia has impacted a large number of foreign companies. Certain intra-group services, including the provision of software updates and remote access to databases for Russian purchasers, are recognised as ESS, thus rendering foreign companies VAT-liable. The relevant rules are currently undergoing major developments, and while some amendments have been already adopted, others are still under review.
According to the Russian tax code, all foreign ESS providers must register with the Russian tax authorities, remit VAT, and file VAT returns. With the new amendments coming into force 01 October 2022, the obligation to pay VAT directly will be effective only for ESS providers in B2C, while with B2B foreign service providers, VAT must be paid to the budget by the relevant Russian purchaser (entity or individual entrepreneur). One reason behind these amendments is the continuation of technical difficulties experienced by foreign entities in making payments to the Russian tax authorities.
Since the new regulation has been only partially adopted, ESS providers are still technically obliged to register with the tax authorities and file tax returns. This applies even to nil tax returns when the relevant VAT has been withheld and remitted to the budget by a Russian counterparty. At the same time, we expect the new rules to take effect in full before the end of 2022. Apart from some remaining issues (e.g. no provisions for “deregistration” of B2B providers and the absence of a mechanism for refunding VAT overpayments), the updated rules are definitely a positive change for foreign companies providing ESS in Russia.
Valeria Khmelevskaya is 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. She 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). Contact Valeria.
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