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A Law establishing the procedure of VAT payment by foreign organizations providing services in electronic form in the Russian Federation will take effect on January 1, 2017.

Federal Law No. 244-FZ "On amending the 1st and 2nd parts of the Tax Code of the Russian Federation” dated 03.07.2016 will take effect on January 1, 2017. This law stipulates the procedure of VAT payment by foreign organizations, which provide services in electronic form in the territory of the Russian Federation.

In general, services provided via Internet are transboundary, when the seller and the buyer, the website owner and the user live in different countries, and they are tax residents of different countries. The procedure of taxation of these services is quite often a subject for discussion at the legislative level between countries since each party wishes to tax the service within its state. Currently, the global trend is to move towards the system of electronic service taxation at the buyer’s location (hereinafter it concerns the value added tax). With this federal law, Russia follows Europe and switches to the above-mentioned system.

In order to control properly the procedure of performing these services, this federal law supplements the Tax Code, Article 174.2 "Specifics of calculation and payment of tax by foreign organizations providing services in electronic form."

Services in electronic form in the context of this article mean services rendered via information and telecommunication networks including but not limited to the Internet information and telecommunication network, computer-assisted using information technologies.

Services in electronic form include:

This category of services does not include:

A foreign organization registering with a tax authority shall submit an application and other necessary documents approved by the Ministry of Finance of the Russian Federation. The application is submitted to the tax authority personally or by a representative, otherwise it may be sent by registered mail or transmitted in electronic form.

When providing services in the territory of the Russian Federation, foreign organizations are not obliged to issue invoices, maintain purchase books, sales books or ledgers of invoices received and issued for service provision. However, information about services shall be reflected in a transaction register — these registers are considered by tax authorities as documents confirming the place of services provided to individuals.

The tax base in terms of service provision by foreign organizations is defined as the cost of services including the amount of tax calculated based on actual sales prices. The cost of services in a foreign currency is recalculated in rubles at the CBR’s exchange rate on the last day of the tax period in which the payment (partial payment) for services was received. The tax base is defined on the last day of the tax period in which the payment (partial payment) for services was received. The tax rate is 15.25 %.

A tax return shall be submitted by foreign organizations not later than the 25th day of the month following the tax period which has ended. Tax payment is also made not later than the 25th day of the specified month. An in-office audit regarding the submitted VAT return is made within six months from the date of return submission.

It is also important to note that the provision of services in electronic form by a foreign organization does not require any permanent establishment of the organization in the Russian Federation. Thus, the duty of foreign organizations to pay taxes in Russia arises only regarding the value added tax.

Currently, the Russian Federal Tax Service develops a special online service that will allow foreign organizations to submit necessary documents to tax authorities and pay taxes remotely in time. A personal account for foreign organizations providing services in electronic form in the Russian Federation is called "Foreign Organization VAT Office." The service will start operating in test mode this autumn, and will be fully functional since January 1, 2017.

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