Foreign Providers of Electronic Services to Russian b2b clients are now Obliged to Pay VAT
Since January 1, 2019 foreign providers of electronic services for legal entities and individual entrepreneurs (b2b-buyers) in Russia are obliged to be registered as VAT payers with the Tax Service of the Russian Federation and to act now as tax agents. The deadline of the registration was specified as February 15, 2019. The applicable law is The Federal law as of November 27, 2017 No.335-FL “On amendments to the Part One and Part Two of the Tax Code of the Russian Federation and certain legislative acts of the Russian Federation”.
When violating these requirements, fine up to 10% of its profits will be imposed on the foreign provider of electronic services. VAT, penalty and fine from 20% to 40% of unpaid tax will be also charged. Over 200 large foreign companies affected by the new law requirement have already registered with tax authorities as VAT payers.
The Federal law as of July 3, 2016 No. 44-FL, came into effect on January 2017, amended the procedure governing the taxation of foreign providers of electronic services. The article 174.2 “Special aspects of tax assessment and payment for foreign enterprises rendering of services in electronic format” defines rendering of electronic services as automatic services using information technologies via information and telecommunication networks including World Wide Web (Internet). They include particularly:
- granting of rights to use the software, remote access and update, including computer games and databases;
- advertising services and provision of advertising space;
- placement of sales proposition and provision of possibilities for establishment of contacts and conclusion of bargains, as well as search and delivery of information on prospective buyers;
- provision and upkeep of Internet presence, support of users’ electronic resources, provision of access of other network users to them, provision of possibilities of their modifying;
- information storage and processing, online provision of compute capacity;
- online data search, selection and sorting;
- provision of domain names and rendering of hosting services;
- administration of information systems and websites;
- granting of rights to use different text contents, graphics, musical and audiovisual works including through the remote access;
- access to search systems and maintenance of statistic data on websites.
The aforementioned services in electronic format rendered by foreign companies in Russia were declared as subjects to VAT. But until 2019 only providers of electronic services to Russian individuals (b2c-buyers) were obliged to be registered as VAT payers.