Russia – New tax requirements for foreign IT companies

As of January 01, 2019, the VAT rate will be increased in Russia from 18% to 20%.

Additional changes recently introduced to the Russian tax legislation require that foreign companies that render IT services in Russia shall register with the tax authorities in Russia; file VAT tax returns and pay VAT in Russia.

As from January 01, 2019 such obligation will be imposed on all foreign companies that render IT services in Russia independent of the fact who is the buyer of such IT services – a natural person, an individual entrepreneur or a legal entity.

Earlier the obligation to pay VAT was imposed only on customers of IT companies in Russia. As a rule, in case of sale of goods, works, services where the territory of Russia is recognized as a place of supply, the obligation to calculate and pay VAT is generally imposed on buyers of such services (legal entities or individual entrepreneurs registered with the tax authorities in Russia) recognized in such cases as tax agents.

In accordance with new tax requirements the foreign companies that render IT services where the territory of Russia is recognized as a place of supply of such IT services shall calculate and pay VAT themselves unless such obligation is imposed on a tax agent.

As from January 01, 2019 the tax agents in such cases will be considered only intermediaries (legal entities or individual entrepreneurs registered with the tax authorities in Russia) engaged in settlements directly with buyers of IT services on the basis of mandate, agency or commission agreements or similar contracts concluded with foreign companies that render such IT services (if there are several intermediaries involved, the intermediary who is involved in settlement directly with buyers will be recognized as the tax agent independent of the existence of the contract concluded with foreign IT company that renders such IT services).

Thus, as from January 01, 2019 the buyers of IT services from foreign companies are no longer considered as tax agents and respectively no longer obliged to calculate and pay VAT for foreign IT companies. Such obligation will be imposed on foreign IT companies themselves with some exceptions specified above.

As a result, all foreign companies that render IT services in Russia shall be registered with tax authorities in Russia in order to fulfil its tax obligations, file VAT tax returns in electronic form and pay taxes respectively.

The buyers of IT services (legal entities or individual entrepreneurs registered with the tax authorities in Russia) will have the right to deduct VAT paid to foreign IT companies provided that such foreign IT companies are duly registered with the tax authorities in Russia.

The registration of foreign IT companies in Russia will require submission of application and a set of documents. Such application can be filed by the representative of such foreign company, by mail or in electronic form through official Internet page of Russian tax authorities.

As an example, Facebook has already announced officially that all its clients in Russia both natural persons and legal entities will pay VAT in the amount of 20% from January 01, 2019. This will be applied to all advertisement accounts where Russia is specified as a country of the company.