Significant indirect tax developments at a glance
- Since 2013 the VAT legislation has been amended several times. One of the changes was aiming at resolving the ambiguity surrounding the VAT treatment of bonuses payable by suppliers of goods (works, services) to customers for the fulfilment of certain conditions (e.g. volume of purchases).
- In summer 2014 the Supreme Arbitration Court adopted a resolution where they provided their interpretation of some ambiguous provisions of VAT legislation (for instance, they clarified that if the contract does not contain reference to the VAT amount, such VAT is deemed to be included to the agreed contract price, that it is possible to claim a VAT recovery within 3 years since the period when the right for such a recovery arose, etc.).
- Since 2014 VAT payers are obligated to submit VAT returns in electronic form.
- There were some other minor amendments to the VAT legislation that introduced certain changes to VAT documentation requirements (for instance, it is no longer necessary to issue VAT invoices in respect of VAT exempt transactions, for taxpayers to maintain VAT registers, except in certain special cases, etc.) , extended the list of VAT exempt services for financial organisations, and clarified the methodology for input VAT allocation by such financial organisations.
- There are discussions regarding increase in VAT rate from 18% to 20% and introduction of a sales tax at the maximum rate of 3% to the Russian tax legislation.
- Also there is an intention of the Russian Government to commence a discussion the with the business community regarding the necessity to introduce changes to the place of supply rules on telecommunications services. The intention is to bring Russian tax legislation in compliance with the international tax practice.
Scope and Rates
Generally, VAT-able operations include:
- The sale of goods (works, services) in Russia and transfer of property rights.
- 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
- construction and installation works for the taxpayer’s own use
- the 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 exempt from Russian VAT (inter alia, banking services, sales of essential medical equipment, supplies of certain goods for children, etc.)
The standard rate of VAT is 18 percent.
There are 10 percent and 0 percent rates applicable in the cases listed below (the lists noted below are not exhaustive and indicate just examples of transactions taxed at these rates).
Furthermore, the application of a reduced or zero VAT rate is subject to specific conditions and documentary requirements.
- export sales
- international transportation services
- the processing of goods placed under the customs procedure of processing in the customs territory of Russia
- services related to provision of railway vehicles/containers and freight-forwarding services related to international carriage or international transportation of goods (subject to certain conditions)
- services relating to the provision of railway vehicles/containers and freight-forwarding services related to carriage or transportation of goods transported through the Russian territory under the customs procedure of customs transit;
- 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)
- 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
There is a list of certain types of activities that under certain conditions are exempt from VAT, for example:
- the leasing of premises to foreign individuals and foreign representative offices accredited in Russia
- the sale of specifically listed medical goods and services
- funeral services
- warranty repair services
- educational services rendered by nonprofit educational institutions on the basis of license
- services rendered by organizations carrying out activities in the area of culture and art
- banking and insurance services
- the provision of rights to use software and know-how and some other IP rights under the license agreement
- R&D works financed out of federal or local budgets and special funds (for instance, Russian Foundation for Basic Research or Russian Foundation for Technological Development Funds Supporting Research, etc.), etc.
An excise duty is imposed mainly on the sale of manufactured excisable goods and on the import of such goods.
There are plans to introduce sales tax in 2015.
There is no separate VAT registration in Russia. Tax registration in Russia is unified and covers the main corporate taxes (property tax, VAT, corporate profits tax). Below are the general cases which lead to tax 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 1 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 through a separate subdivision in Russia (tax and legal registration is performed by the tax authorities when setting up a branch / representative office).
A company carrying out commercial activities in Russia in the 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 constitute 10,000 Rubles (approx EUR 250); administrative penalties may apply as well.
The same penalties apply if a company does not apply for registration of its separate subdivision where it carries out activities through such a subdivision.
No, it is impossible.
A foreign company is obliged to register with the tax authorities within 30 days after start of business activities in Russia through a separate subdivision.
If a foreign company does not physically carry out business activities that require a tax registration in Russia but merely conducts sales in Russia which are deemed VAT able in Russia, such sales per se does not give rise to tax registration obligation for the foreign company in Russia. In this case the Russian buyer/customer is required to withhold and pay VAT to the Russian budget as a tax agent on behalf of foreign entity.
There is no concept of a fiscal representative in Russia.
There is no VAT grouping concept in Russia.
VAT returns should be submitted quarterly.
Since 2014 taxpayers are obligated to submit their VAT returns electronically via the special software.
A separate VAT return should be submitted in respect the import of goods by a Russian company from another country in the Customs Union between Russia, Belorussia and Kazakhstan.
The Russian Central Bank’s exchange rate is applicable. The effective date is the date on which the purchased goods/services are booked in the accounting systems/records (when settlements and liabilities are set in the foreign currency).
Local/established businesses which incur VAT
N/A. Local/established businesses in Russia are subject to mandatory tax registration in Russia.
Overseas businesses with no local presence and no local VAT/GST registration
No, it is not possible in Russia.
Not applicable, no VAT is refunded to companies that are not registered for tax purposes in Russia.
The following general conditions should be met to claim input VAT recovery:
- goods or services are acquired by a taxpayer for the use in VAT able activity;
- a VAT invoice is in place to support the claim;
- expenses for the acquisition of goods or services are booked in the accounting records of a taxpayer and confirmed by primary documents.
VAT on representation expenses and on business trips can be recovered within the established limits. No other limitations exist.
International Supplies of Goods and Services
Exports – Goods
Export sales are subject to 0 percent VAT.
Exports – Services
There is no concept of “export of services” in Russia. If a Russian company renders services in favour of a foreign company the VAT treatment of such services will be determined on the basis of the place of supply rules. The place of supply rules for cross-border services depends on the nature of these services. Under the general place of supply rule the services are deemed to be supplied in Russia if the service provider performs business activity in Russia. There are exceptions from this default rule (for example, the place of supply of transfer of IP rights, consulting, accounting, audit, legal, marketing, information processing services should be determined based on the buyer’s place of activity).
Also there is a list of zero VAT-rated services related to the transportation of exported goods (international transportation services, services related to provision of railway vehicles/containers and freight-forwarding services related to international carriage or the international transportation of goods (subject to certain conditions), etc).
Imports – Goods
Generally import VAT and possibly Customs duties (if applicable) should be paid with respect to the goods imported into Russia.
Only a Russian legal entity and a registered representative office or branch of a foreign legal entity (in a limited number of cases) may act as an importer of goods into Russia. The importer is liable for payment of VAT and customs duties (if applicable) and customs clearance procedures.
Imports – Services
If a foreign company renders services to a Russian company such services are subject to VAT if they are deemed be supplied in Russia under the place of supply rules. The place of supply of services in such case should be determined as described in “Export – Services” section.
If a foreign company that does not have a tax registration in Russia renders services to a Russian company and the place of supply of such services is Russia, the foreign company is considered a taxpayer, however, it is obligation of a Russian buyer of the services to calculate VAT, withhold it from the amount of payment and remit it to the budget.
Amount subject to VAT/GST
Generally, VAT is calculated based on the total amount of consideration for the supply of goods, works services or property rights. In the case of free-of-charge transfers of goods/works/services the VAT is based on the market value of such goods/works/services.
Import VAT is calculated based on the customs value of the imported goods.
Generally, the tax point is the earliest of the following dates:
- the date when the goods or services are transferred or
- the payment date.
Tax point could be different in respect of certain types of transactions.
Generally, the Russian sellers of goods, works and services are obliged to issue VAT invoices in respect of any sales to business customers. Sales to individuals and VAT exempt sales do not require a VAT invoice.
Also since Quarter 4 of 2014, VAT invoices are not necessary in case of sales to companies that are not considered VAT payers or exempted from obligation to pay VAT, if there is a mutual consent of the parties in this respect.
A VAT invoice (a faktura-invoice) in an 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:
- the serial number and date of the invoice
- the name, address and identification numbers of the taxpayer and buyer
- the name and address of the consignor and consignee
- the name of the delivered (shipped) goods (description of the executed works, rendered services) and unit of measurements (if it’s possible to indicate)
- the 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)
- the currency
- the price (tariff) per unit of measurement (if it’s possible to indicate) under an agreement (contract) net of tax
- the 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
- the sum of excise duty levied on excisable goods
- the tax rate
- the amount of tax the buyer of goods (works, services), property rights is charged which is defined on the basis of effective tax rates
- the 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.
There are no simplified invoices in Russia, However a seller is now allowed to use a unified transfer document that substitutes a VAT invoice and the respective shipping document. The key requirement is that a form of a unified transfer document should include all the requisites necessary for VAT-invoice.
The VAT invoices can be prepared and completed electronically with the mutual consent of the parties which have compatible equipment for receiving and processing of electronic invoices.
Generally, self-billing where a customer prepares the invoice for the supplier is not possible in Russia. However, when VAT is self-assessed by the customer, the customer prepares a VAT-invoice itself to formalize its VAT liabilities.
Yes, it is permissible (for the contracts where liabilities and settlements are performed in foreign currency).
Transfers of Business
No, there is no concept of a sale of business as a going concern in Russia. If a sale of enterprise as “a property complex” takes place the special VAT rate of 15.25 percent is applied (it is assumed that the sales price is inclusive of VAT). In the case of a sale of an enterprise as a property complex, the VAT base shall be defined separately for each type of assets of this enterprise. The sale of an enterprise as “a property complex” is subject to a number of requirements and restrictions and is not commonly used in practice.
Options to Tax
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, patent tax regime 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.
Head Office and Branch transactions
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.
There is no relief for bad debts.
There are no general anti-avoidance provisions in the Russian tax law. The higher courts of Russia (the Supreme Arbitration Court, the Constitutional court) have, however, developed the concept of a “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. The concept often applies in practice by both tax authorities and courts.
Underpayment of taxes triggers the following types of penalties:
- 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 apply 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.
In addition, late payment interest applies to the amount of the underpayment. Late payment interest should be calculated as 1/300 of the Russian Central Bank’s refinancing rate for each day of delay in payment.
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 audits can be started once the taxpayer files its 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.
Generally, the Russian tax authorities cannot perform more than one field tax audit for the same tax and for the same period.
Are there audits done electronically in your country (e-audit)? If so, what system is in use?
No, there are no electronic tax audits.
Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?
It is only possible to obtain clarifications from the respective authorities. Generally, the Russian Ministry of Finance is responsible for providing such clarifications. However the clarifications of the Russian authorities are not binding for the taxpayers.
If the Russian taxpayer has obtained the tax authorities’ clarifications on the VAT issues for specific situations this protects the taxpayer from tax penalties and late payment, but not from the VAT liability.
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 generally publicly available in Russia if they are not issued to the particular taxpayer.
The main differences with EU VAT may be described as follows:
- no VAT grouping
- no separate VAT registration
- recovery of input VAT is possible only for the taxpayers registered with the Russian tax authorities.
There are VAT incentives for small businesses with revenue less than 2 mln Rub within 3 months or that apply special tax regimes. Also there are VAT incentives for participants of R&D and commercialization project in Skolkovo innovation centre.