Russia | Change to VAT Rules for Non-resident Suppliers of B2B Digital Services

From 1st January 2019, foreign suppliers of business-to-business (B2B) electronically supplied services will be required to register with the Federal Tax Service in Russia and account for any VAT owed on those supplies.

The current method whereby the Russian business customer collects and remits the VAT at the standard 18% rate to the tax authorities through the reverse charge mechanism will be removed.

As of 2017, foreign providers of electronically supplied services to private individuals in Russia (B2C), must register for tax in Russia and charge VAT at the VAT inclusive standard 15.25% rate.  Federal Law No. 335-FZ of 27th November 2017, expands the scope of these VAT rules to include B2B supplies effective from 1st January 2019.  The registration requirement is triggered once the sales of digital services to the value of RUB 1 is made.

The impacted services are listed in Article 174.2 of the Russian Tax Code and include, amongst others, the provision of databases, web-hosting services, search engines, access to social networks, streaming of music and film, and gaming.

Registration and Returns

Foreign businesses are required to register by 15th February 2019, via the Federal Tax Service’s portal for online service providers.  VAT returns and payments will be due on a quarterly basis by the 25th day of the month following the reporting period.

The maintenance of electronic services sales ledgers will also be required.  Russian businesses and private entrepreneurs will be able reclaim their input VAT provided that all the necessary requirements have been met.  Registration is still mandatory for foreign providers of VAT exempt supplies such as software licences.