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

Prospects of cooperation between Russia, China, Mongolia

On the 23th and 24th of June the 15th meeting of the Council of Heads of Member States of the Shanghai Cooperation Organization was held in Tashkent (Uzbekistan) with the participation of 18 countries. The agenda of the summit was to discuss further improvements of the activity of the SCO, the cooperation in priority areas: security, countering terrorism and extremism, fight against drug trafficking, economy, humanitarian ties, Eurasian integration. 

The discussion of trade and economic cooperation included issues of the implementation of joint infrastructure projects in the field of trade and investment, transport, energy, finance, agriculture, telecommunications. The leaders of member countries of the summit discussed the large-scale tasks of association of the Eurasian Economic Union and the Silk Road Economic Belt, as a result of which is the formation of a common economic space.

The most important results of the summit are:

  • the SCO became stronger as a significant and powerful player on the international scene;
  • India and Pakistan became the statuses of full members of the SCO;
  • the Republic of Azerbaijan and Armenia, the Kingdom of Cambodia and Nepal were granted dialogue partner status in the SCO;
  • it was supported the China’s initiative to establish the Silk Road Economic Belt;
  • it was considered the issue of the establishment of the SCO Development Bank and Development Fund (Special Account) of the SCO;
  • adoption of the Action Plan 2016-2020 on the implementation of the SCO's development strategy until 2025.

Among the most important issues is the need for further promotion of cooperation in the sphere of transport and the formation of international transport corridors between Asia and Europe. 

As a result of the summit the leaders signed the Program of creation of an economic corridor China - Mongolia - Russia and the Agreement between the customs authorities of the three countries on the mutual recognition of the results of customs control in respect of certain goods. 

The program is aimed at an activation of border ties by launching of more than 30 tripartite projects. Among them: the establishment of a joint center for investment planning, modernization of the Ulan Bator railway, high-speed long distance railroad Moscow-Kazan, which is already at the design stage and will be a part of the revived belt «Great Silk Road», the space programs, joint development of wide-body aircraft, construction of the pipeline «Power of Siberia» etc. Thus, this program will contribute to the development of constituent entities of the RF located along the route of transport corridors, as well as will kick start to the development of the trade and economic cooperation with China and Mongolia.