Dear colleagues,
Our team presents an overview of changes in tax legislation regarding VAT from electronic services. We would be glad to analyze your situation and develop individual recommendations in response to upcoming e-services VAT changes.
Summary
- Starting from 01.10.2022 foreign companies providing electronically supplied B2B services (B2B e-services) are no longer obliged to withhold and remit VAT. From there on byers of the respective B2B e-services must act as the tax agents responsible for withholding and remittance of VAT.
- However, starting from 01.10.2022 in the basic case of B2C e-services provision foreign companies remain to qualify as VAT payers and must report and remit VAT.
- A special case scenario occurs when the following companies act as tax agents responsible for withholding and remittance of VAT: foreign intermediaries in case of B2C services; Russian companies participating in B2B and B2C services, including those acting as intermediaries.
- Tax registration rules remain unchanged while the possibility of deregistering foreign B2B e-services providers as well as the terms of VAT payment during the transitional period have not been defined.
- Considering the current absence of clear regulations we do not advise to apply for deregistration or to stop submitting the VAT tax returns for foreign e-services providers, including those engaged in B2B business only. We will be tracking official rulings and tax law changes to update you if deregistration would be clearly set out as permissible.
Details
- In the current edition of the Russian Tax Code (RTC) the obligation to withhold and remit VAT is imposed on the foreign e-services providers. Exceptions apply to the cases when VAT is payable by the tax agents. That is:
- If e-services are rendered via Russian or foreign intermediary taking part in the settlements (p. 3 and p. 10 art. 174.2 of the RTC).
- Furthermore, the Federal Law dd. 14.07.2022 N 323-FZ introduces changes to the art. 174.2 of the RTC (effective from 01.10.2022) with respect to e-services VAT withholding and remittance rules:
- Foreign companies are to withhold and remit e-services VAT only in case of B2C services (p. 3 art. 174.2 of the RTC). In case of B2B e-services Russian companies acquiring such services shall act as tax agents.
- Special case scenario – Russian companies and individual entrepreneurs also qualify as tax agents if they take part in providing B2C and B2B e-services, even on the basis of intermediary agreements (p.10 and p. 10.1 art. 174.2 of the RTC).
- Special case scenario – foreign companies acting as intermediaries with respect to B2C e-services (p.3 art. 174.2 of the RTC) are also recognised as tax agents.
- At the same time, a foreign company shall still submit VAT tax returns as per p. 8 art. 174.2 of the RTC any foreign company registered as e-services provider (p. 4.6 art. 83 of the RTC) is formally obliged to do so, i.e. both B2B and B2C e-services providers.
* The Federal Law No. 323-FZ of 14 July 2022, “On Amendments to Part 2 of the Russian Tax Code”.
