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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 11/1/2012

Russia: VAT essentials 

Essential information regarding VAT as it applies in Russia.


Scope and Rates

What supplies are liable to VAT?


Generally, VAT-able operations include:


  • sale of goods (works, services) in Russia and transfer of property rights
  • transfer of goods (works, services) in Russia for the taxpayer’s own use if the expenses incurred are non-deductible for corporate profit tax purposes
  • construction and installation works for the taxpayer’s own use
  • import of goods into Russia and other territories under its jurisdiction.

Please note that free-of-charge supplies are also subject to Russian VAT.


There is a list of transactions which are not VAT-able in Russia (inter alia, banking services, sales of essential medical equipment, some children-related services, etc.)


What is the standard rate of VAT?


The standard rate of VAT is 18 percent.


Are there any reduced rates, zero rates, or exemptions?


There are 10 percent and 0 percent rates applicable in the below-stated cases (the below lists are not exhaustive and indicate the most common transactions taxed at these rates).

Furthermore, the application of a reduced or zero VAT rate is subject to specific conditions and documentary requirements.


O percent


  • export sales
  • international transportation services with respect to goods services rendered in seaports and river ports on the transshipment and storage of goods moved across the Russian border
  • processing of goods placed under the customs procedure of processing in the customs territory
  • services related to provision of railway vehicles/containers and freight-forwarding services related to carriage or transportation of goods –placed under the export customs procedure rendered by the Russian railway carriers (if the transportation takes place on Russian territory)
  • services related to provision of railway vehicles/containers and freight-forwarding services related to carriage or transportation of goods transported through the Russian territory
  • work (services) directly related to the carriage or transportation of goods placed under the customs procedure of customs transit transportation of passengers and luggage, if the departure point or the destination point is outside the Russian territory provided the carriage is registered on the basis of uniform international documents of carriage
  • supplies exported from Russia (fuel and combustive-lubricating materials necessary for the functioning of aircraft and sea ships)

10 percent


  • sales of specifically listed foodstuffs
  • sales of specifically listed goods for children
  • sales of periodical printed publications, except for those of advertising or erotic nature
  • sales of specifically listed medical goods manufactured both in and outside of Russia

Exemptions


There is a list of certain types of activities that under certain conditions are exempt from VAT, for example:


  • leasing of premises to foreign individuals and foreign representative offices accredited in Russia
  • sale of specifically listed medical goods and services
  • ritual services
  • warranty repair services
  • educational services rendered by nonprofit educational institutions on the basis of license
  • services rendered by nonprofit institutions carrying out activities within the scope of culture and art
  • banking and insurance services
  • supply of right to use the software and know-how under the license agreement
  • R&D works rendered at the expense of budgets and special funds, etc.

What are the other local indirect taxes beside VAT?


An excise duty is imposed mainly when the sale of excisable goods takes place.

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Registration

Who is required to register for Russian VAT?


There is no separate VAT registration mechanism in Russia. The tax registration in Russia is unified and covers all the taxes. Below are the general cases which lead to registration with the Russian tax authorities.


Russian Legal Entities, individual entrepreneurs


Companies and individuals engaged in commercial, industrial, agricultural or independent professional activities in Russia are required to register with the Russian tax authorities. When carrying out activities through a subdivision (in a location different from the one where the head office is registered), the company should apply for the registration within one month after establishment of such a subdivision.


Non-Russian Legal Entities


Non-Russian legal entities are required to register with the Russian tax authorities within 30 calendar days after commencing to conduct business activities in Russia either as a branch or a representative office (tax registration is performed automatically by the statutory authorities when setting up a branch / representative office).


Are there penalties for not registering or late registration?


A company carrying out commercial activities in Russia in absence of tax registration may be penalized in the amount of 10 percent of income obtained from such activities, but not less than 40,000 Rubles.


In case of violating the established deadline for tax registration, the applicable penalties would constitute 10,000 Rubles (approx EUR 250); administrative penalties may apply as well.


The same sanctions are implied in case if a company does not apply for registration of its separate subdivision in case of carrying out activities through such a subdivision.


Is voluntary VAT registration possible for an overseas company?


No, it is impossible.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


A foreign company is obliged to register with the tax authorities within 1 month days after start of business activities in Russia.


If a foreign company does not physically carry out business activities in Russia but sells goods/works/services to the Russian customers which are payers of Russian VAT, such a foreign company is not obliged to obtain tax registration in Russia. In this case the Russian buyer/customer is required to withhold and pay VAT to the Russian budget as a tax agent.


Does an overseas company need to appoint a fiscal representative?


There is no concept of fiscal representatives in Russia.

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VAT grouping

Is VAT grouping possible?


There is no VAT grouping concept in Russia.


Can an overseas company be included in a VAT group?


N/A.

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Returns

How frequently are VAT returns submitted?


VAT returns should be submitted quarterly. There is a unified VAT return which includes information on VAT at all applicable rates, VAT withheld as a tax agent, import VAT paid, etc.


Taxpayers may submit their VAT returns electronically via the special software.


Are there any other returns that need to be submitted?


No, there are none.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


Central Bank’s exchange rate is applicable effective on the date of booking of purchased goods/services in accounting (when settlements and liabilities are set in the foreign currency).

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VAT recovery

Can a business recover VAT if it is not registered?


No, it is not possible in Russia.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


Not applicable, no VAT is refunded to companies who are not VAT registered in Russia.


Are there any items that businesses cannot recover VAT on?


VAT on representation expenses and on business trips can be recovered within the established limits. No other limitations exist.

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International Supplies of Goods and Services

How are exports of goods and services treated?


Goods


Export sales are subject to 0 percent VAT.


A company should submit a set of documents which may vary depending on the nature of transaction to the Russian tax authorities in order to justify the right to apply the 0 percent VAT rate.


Generally, a company should submit:


  • foreign-trade contract
  • the customs declaration with the written statement (stamps) of the customs authorities where the goods were placed under export and the customs authorities at the border
  • copies of transport, shipping and/or other documents with the written statement (stamps) of the customs authorities at the border (located at the place from where the goods actually leave the customs territory) confirming export of goods.

The above package of documents shall be submitted within 180 days from the date of placing the goods under the customs procedure of export. If the documents have not been submitted within the above deadline, output VAT should be charged and paid to the budget at 18 percent rate. However, later, upon submission of the required documents to the tax authorities VAT can be reclaimed from the budget.


Services


There is a list of zero VAT-rated services related to carriage or transportation by different types of transport of the exported goods. This list includes, in particular, the following services:


  • international transportation services
  • works and services rendered by the Russian pipeline transportation companies with respect to oil and oil products
  • services related to transportation of natural gas by pipeline
  • services provided by the company managing the unified national electric grid with respect to electric power transmission to the electric power systems of foreign companies
  • services provided at seaports and river ports related to transshipment and storage of goods moved across the Russian border
  • services rendered by the Russian railway carriers and related to provision of railway vehicles/containers and freight-forwarding services with respect to carriage or transportation of exported goods and others.

Please note that to confirm zero-rated VAT specific set of documentation for each particular case are required.


How are goods dealt with on importation?


Only a Russian legal entity and the registered representative offices or branches of a foreign legal entity may act as importers of goods into Russia. The importer is liable for payment of VAT and customs duties (if applicable) and customs clearance procedures.


Import VAT is calculated based on the customs value of the goods.


How are services which are brought in from abroad treated for VAT purposes?


Services are subject to VAT if they are deemed to be supplied in Russia. There are special rules for determining the place of supply of cross-border services for VAT purposes depending on the nature of these services.


Under the general rule the services are deemed to be supplied in Russia if the supplier of services is a Russian legal entity or a foreign legal entity which has the place of management in Russia or which conducts business activity in Russia through permanent establishment (if the services are provided through this permanent establishment).


There is a list of services which are deemed to be provided in Russia if the buyer of these services is a Russian legal entity or a foreign legal entity which either conducts business activity through a permanent establishment in Russia (if the services are provided through this permanent establishment) or has its place of management in Russia. These services include:


  • transfer of patents, licenses, trademarks, copyrights
  • consulting, accounting, audit, legal, marketing, information processing services etc.

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Invoices

Is a business required to issue tax invoices?


No other tax invoices except for VAT invoices should be issued by the Russian taxpayers.


What do businesses have to show on a tax invoice?


A VAT invoice (a faktura-invoice) of the established format must be issued upon sale of goods / provision of services / performance of works / transfer of property rights or receiving a payment or partial payment for future supplies.


A VAT invoice should contain, in particular, the following data:


  • serial number and date of the invoice
  • name, address and identification numbers of the taxpayer and buyer
  • name and address of the consignor and consignee
  • name of the delivered (shipped) goods (description of the executed works, rendered services) and unit of measurements (if it’s possible to indicate)
  • quantity (volume) of goods (works, services) delivered (shipped) under the invoice on the basis of units of measurement accepted for it (where it is possible to indicate)
  • currency
  • price (tariff) per unit of measurement (if it’s possible to indicate) under an agreement (contract) net of tax
  • value of goods (works, services), property rights for the entire quantity of delivered goods (shipped) on the invoice (executed works, rendered services), transferred property rights net of tax
  • sum of excise duty levied on excisable goods
  • tax rate
  • amount of tax the buyer of goods (works, services), property rights is charged which is defined on the basis of effective tax rates
  • value of the entire quantity of delivered (shipped) goods (executed works, rendered services), transferred property rights under the invoice including VAT.

VAT invoices filed in with mistakes may result in challenging of VAT recovery by the tax authorities.


Can businesses issue invoices electronically?


The VAT invoices can be prepared and completed electronically by the mutual consent of the parties which have compatible equipment for receiving and processing of electronic invoices.


Is it possible to operate self-billing?


Self-billing where a customer prepares the invoice for the supplier is not possible in Russia. In certain cases, when VAT is self-assessed by the customer, the customer prepares a VAT-invoice to formalize its VAT liabilities.


Can a business issue VAT invoices denominated in a foreign currency?


Yes, it is permissible (for the contracts where liabilities and settlements are performed in foreign currency).

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


No, there is none. When the sale of going concern takes place the special VAT rate of 15.25 percent is applied. In case of sale of an enterprise as a property complex, VAT base shall be defined separately for each type of assets of this enterprise.

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Options to Tax

Are there any options to tax transactions?


The Russian Tax Code provides a number of special tax regimes, which replace VAT and other tax payments: simplified taxation system, imputed income tax system and special tax regimes for particular industries. These regimes may be applied by taxpayers complying with the sales revenue criteria, operating in a specific industry etc.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


The head office and the branch constitute one legal entity, therefore, the transactions between them do not constitute sales and, consequently, are not subject to VAT.


However, as it was mentioned above the transfer of goods (works, services) in Russia for the taxpayer’s own use, if the expenses incurred are non-deductible for corporate profit tax purposes, is subject to Russian VAT.

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Bad Debt

Are businesses able to claim relief for bad debts?


There is no relief for bad debts.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


There are no general anti-avoidance provisions in the Russian tax law. Higher courts of Russia (the Supreme Arbitration Court, the Constitutional court) have developed the concept of “bad faith” taxpayer and “unjustified economic benefit” in their decrees / definitions. According to this guidance, transactions which are viewed as lacking “a reasonable business purpose” and as aimed primarily at obtaining tax savings, may lead to denial of input VAT recovery for all its participants. Please note that the subject concept is vastly applied in practice by both tax authorities and courts.

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Penalty Regime

What is the penalty and interest regime like?


Underpayment of taxes triggers the following major types of sanctions:


  • penalties for tax underpayment / non-payment imposed over the assessment of underpaid tax (penalties and late payment interest)
  • penalties for other types of incompliance with tax law (e.g., non-registration, presenting false information to the tax authorities, non-filing tax returns etc.)
  • tax penalties may be imposed on companies and individuals
  • administrative penalties (the amount depends on the violation) – may be applied to company’s management
  • criminal proceedings (penalties, imprisonment and others) – may be initiated against the company’s management for violation of tax and customs law.

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Tax Authorities

Tax audits


How often do tax audits take place?


There are two types of tax audits: field tax audit (at the taxpayer’s premises) and in-house tax audit (at the tax authority’s premises).


In-house tax audit can be started once the taxpayer files tax return. A field tax audit usually covers several years of prior activity of the taxpayer and starts under special decision of the tax authority.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


No, there are no electronic tax audits.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


Yes, however the clarifications of the Russian tax authorities are not binding for the taxpayers.


If the Russian taxpayer has obtained the tax authorities’ clarifications on VAT issues upon specific situation it protects the taxpayer from tax penalties and late payment interest imposing resulted from the contrary VAT treatment of the same situation.


Are rulings and decisions issued by the tax authorities publicly available in your country?


The Russian tax authorities’ clarifications on application of the tax legislation are publicly available in Russia if they are not issued to the particular taxpayer.

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


The main differences with EU VAT may be described as follows:


  • input VAT related to supplies outside Russia is a cost
  • no VAT grouping
  • no separate VAT registration
  • recovery of input VAT is possible only for the Russian taxpayers etc.

Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


No, except for the reduced and zero rates mentioned previously.

 

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