Russian companies quite often purchase services from foreign companies which are not registered with the tax authorities in Russia.
- Consulting and IT services
- Advertising services
- Software development services
- Construction-assembly works
- Granting the right to use IP assets
What does this mean?
This means that a tax agent should calculate, withhold and pay VAT to the Russian budget as of the date when payments or prepayments for services are forwarded to a foreign company. And this is irrespective of whether the agent is a VAT payer or not.
The taxation base is to be determined separately for each transaction as an amount of income from the sale of goods or services inclusive of VAT. The amount of VAT paid from the foreign company income is determined under the calculation method at an inclusive tax 20/120 or 10/110 (item 4, article 164 of the RF Tax Code).
A tax agent shall also submit the tax declaration to its tax inspection with sections 2 and 9 filled out.
What are possible threats?
If VAT is not withheld and paid to the budget in a timely manner, the tax agent may be brought to responsibility. Penalties and outstanding taxes can be collected from the tax agent in addition to fines.
- Tax not withheld and (or) paid to the budget in a timely manner: the fine is 20% of the tax amount. The fine will also apply, if the agent has paid the tax from its own funds instead of withholding it from the paid income.
- Tax declarations not submitted in a timely manner: the fine is from RUB 1,000 to 30% of the unpaid tax amount (item 1 of article 119 of the RF Tax Code). The tax agent has withheld VAT from the taxpayer’s income, but did not pay it to the budget. The tax inspection has the right to impose arrears and penalties. If VAT is paid behind schedule, penalties can be charged on the tax agent (items 6, 7 of article 75 of the RF Tax Code).
A Russian company shall transfer VAT to the budget, if it purchases services from a foreign supplier not registered with the RF tax authorities. The territory of the Russian Federation is recognized as the place of supply of these services (article 148 of the RF Tax Code).
The Russian Federation is recognized as the place of supply of services in the following cases:
- The property is located on the RF territory
Purchased services relate to immovable or movable property located on the RF territory. For example, construction, installation, building and assembly, maintenance, restoration works, landscape gardening, rental services (sub-items 1, 2 to item 1 of article 148 of the RF Tax Code).
- Services are provided on the RF territory
Purchased services relate to cultural, arts, educational, physical training, tourism, and sports and leisure sectors and are provided on the RF territory (sub-item 3 to item 1 of article 148 of the RF Tax Code).
- The purchaser carries out its activities on the RF territory
The purchaser of services carries out its activities on the RF territory and purchases patents, licenses, right for software and databases, consulting, legal, accounting, auditing engineering, advertising, and marketing services (sub-item 4 to item 1 of article 148 of the Rf Tax Code)
What if it is a license agreement?
The realization of rights under a license agreement is not subject to VAT in Russia in the following cases:
- If the subject matter of the license agreement are exclusive rights for inventions, know-how, utility models, industrial designs, databases, etc.
- If the subject matter of the license agreement is the right to utilization of the aforementioned IP assets.
Sophia Rapkina, head of the accounting services group, “Informauditservice”.