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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 1^st and 2^nd 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:

• granting of rights to use computer programs (including computer games) and databases via Internet including but not limited to granting remote access to them, updates and additional features;
• advertising services on the Internet including the use of programs for computers and databases on the Internet, as well as the provision of advertising space on the Internet;
• services on placing offers on the purchase (or sale) of goods (works, services) or property rights on the Internet;
• Internet services on providing technical, organizational, informational and other capabilities with the use of information technologies and systems to establish contacts and make transactions between buyers and sellers (including an online trading platform on the Internet where potential buyers offer a price via an automated procedure and the parties are notified on a sale via an automatic message);
• providing and/or maintaining commercial or personal presence on the Internet, support of users’ e-resources (websites and/or web pages), providing access to other users of the network, allowing users to modify them;
• storage and processing of information if the person submitting the information has access to it via Internet;
• online provision of computational power to place information in the information system;
• providing domain names, rendering hosting services;
• administration services for information systems, websites on the Internet;
• services executed automatically via Internet when the service buyer enters data, automated services for searching, selecting and sorting data by requests, providing these data to users via information and telecommunication networks (in particular, online stock market data, automated online translation);
• granting of rights to use electronic books (publications) and other e-prints, information and educational materials, graphic images, pieces of music with or without text, audiovisual works via Internet including provision of remote access to view or listen them via Internet;
• provision of services on searching and/or submitting information about potential buyers for the customer;
• provision of access to search engines on the Internet;
• maintaining statistics on websites on the Internet.

This category of services does not include:

• marketing of goods (works, services) if delivery of goods (performance of works, provision of services) when ordering online is performed without the use of the Internet;
• sales (assignment of usage rights) of computer programs (including computer games), databases on physical media;
• providing advisory services via e-mail;
• providing Internet access services.

Foreign organizations providing these services to individuals (BTC) in the territory of the Russian Federation shall be registered with the tax authority of the Russian Federation within 30 days from the date of service provision. The territory of the Russian Federation is considered the place of service provision if any one or more of the following conditions are met:

• the place of buyer’s residence is the Russian Federation;
• the bank with which the account used for service payment is opened or the electronic money operator is located in the territory of the Russian Federation;
• the network address used for service purchasing is registered in the Russian Federation;
• the international dialing code of the phone number used for service purchasing belongs to the Russian Federation.

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.