VAT for providers of electronic services

In our publication from July 20, 2016 “Foreign sellers of the Internet content will pay VAT in Russia”we informed that since January 1, 2017 the Federal law as of July 3, 2016 №244-FL came into force. The law amended the procedure governing the taxation of foreign providers of electronic services. The article 174.2 “Special aspects of tax assessment and payment for foreign enterprises rendering of services in electronic format” was introduced into the Part Two of the Tax Code of the Russian Federation. The article defines rendering of electronic services as automatic services using information technologies via information and telecommunication networks, including Internet.

The Federal law as of November 27, 2017 №335-FL “On amendments to the Part One and Part Two of the Tax Code of the Russian Federation and certain legislative acts of the Russian Federation” established that since January 1, 2019, foreign providers of electronic services for legal entities and individual entrepreneurs in Russia are obliged to pay value added tax (VAT). In this regard, all foreign providers are required to register for tax purposes until February 15, 2019.

When violating these provisions, the company will be imposed with fine up to 10% of its profits (according to paragraph 2 of article 116 of the Tax Code). Moreover, VAT, penalty and fine from 20% to 40% of unpaid tax will be charged.

Large foreign companies have already registered with tax authorities. According to the Federal tax Service , over 200 foreign companies are recorded as VAT taxpayers. Comprehensive information on their economic activities is available by subscription to the Information and Analytical System Globas.