Foreign IT Companies to Pay Russian VAT

On July 3, 2016, the President of Russia signed the law amending the Tax Code of the Russian Federation (the “New Law”), effectively imposing VAT on certain transactions made over the Internet by foreign companies with Russian customers.

To whom does the New Law apply?

Foreign companies rendering selected services over the Internet to customers, provided that the place of delivery of such services is located in Russia. The latter is presumed in the following cases:

  • Customer’s domicile is in Russia;
  • Customer is using a bank account opened with a Russian bank;
  • Customer is using a Russian payment service provider;
  • Customer’s IP address is registered in Russia;
  • International code of the phone number used by a customer is assigned to Russia.

Which services are taxed?

  • Granting access to computer software (including computer games) and databases in the Internet, including by remote access;
  • Provision of online advertising services, including advertising space on the Internet;
  • Granting opportunity to place offers for the sale of goods (works, services) on websites or through computer programs;
  • Granting access to Internet search engines;
  • Services of online trading platforms (marketplaces);
  • Support of websites and customers’ web pages;
  • Sale of digital goods (electronic books, graphic images and music) via the Internet, etc.

How does the New Law work?

The New Law enters into force on January 1, 2017. Foreign companies falling within its scope are required to register with Russian tax authorities no later than February 1, 2017. It is explicitly provided in the New Law that such a registration will not lead to the creation of a permanent establishment in Russia for tax purposes. Filing of a tax declaration and other documents will be possible through a taxpayer’s personal account in electronic form. If a Russian customer is a legal entity or an individual entrepreneur, such Russian customers will serve a role of a tax agent for the payment of VAT.

The first tax period is defined as starting at the date of provision of services (but not earlier than January 1, 2017) until the end of the relevant quarter. The tax itself is payable no later than 25th day of the month following the relevant tax quarter. VAT rate under the New Law is set at 15,25%.

The New Law potentially affects a wide range of foreign companies offering their services to Russian customers over the Internet or mobile applications. Such companies should take the latest changes into account when considering new or further moves on the Russian market.

contact person

Ilya Kokorin

Of Counsel