Foreign sellers of the Internet content will pay VAT in Russia

The Federal law as of July 3rd, 2016 №244-FZ «Concerning the Introduction of Amendments to the first and second part of the Tax Code of the Russian Federation» will come into force since January 1st, 2017. 

The amendments are introduced into a total of 185 articles of the Tax Code. We would like to turn the attention to amendments related to taxation of foreign enterprises rendering electronic services.

The article 174.2 «Special aspects of tax assessment and payment for foreign enterprises rendering services in electronic formats» was introduced into the second part of the Tax Code of the Russian Federation. This article identifies rendering of electronic services as automatic services using information technologies through information and telecommunication networks, including Internet. Different electronic services are referred to such networks: 

• granting of rights to use the software, remote access and update, including computer games and databases; 
• advertising services and provision of advertising space;
• placement of sales proposition and provision of possibilities for establishment of contacts and conclusion of bargains, as well as search and delivery of information on prospective buyers;
• provision and upkeep of Internet presence, support of users’ electronic resources, provision of access of other network users to them, provision of possibilities of their modifying;    
• information storage and processing, online provision of compute capacity;
• online data search, selection and sorting; 
• provision of domain names and rendering of hosting services;
• administration of information systems and websites;
• granting of rights to use different text matters, graphics, musical and audiovisual works including through the remote access to them; 
• Access to search systems and maintenance of statistic data on websites. 

Among these electronic services the following operations are excluded: sale of goods, works or services when delivered without using Internet; sale and granting of rights to use the software and databases, including computer games, on tangible mediums; consultations via e-mail; Internet access services.  

The abovementioned services in electronic format, rendered by foreign companies, are subject to VAT at the rate of 18%. 

Foreign IT-companies will have to open an online account of a tax payer in the Russian tax authorities, to use electronic signature and to open own account in a Russian bank meeting at least one of the following conditions: 

• the buyer lives in Russia;
• the buyer’s telephone number has the Russian international code; 
• the buyer has a bank account for service payment in Russia;
• the buyer’s IP-address is located Russia

The first tax period for foreign enterprises to pay VAT will be the period from the date of starting operations on rendering of electronic services till the end of the corresponding quarter, but no sooner than January 1st, 2017.   

According to experts, Russian and foreign IT-companies will get the equal working conditions after the law will came into force, as the advantages for foreign enterprises registered in low-tax and tax-free jurisdictions will be removed. The new rules of paying VAT will give the Russian budget extra 50 billion RUB as late as 2017.

To get acquainted with the results of the Russian largest IT-companies’ activity, please follow the link http://www.credinform.ru/en-US/news/details/847481e990a3