Foreign Digital Service Providers Will No Longer Be Required To Self-Assess and Pay VAT
On July 5, 2022, the State Duma of the Russian Federation passed Bill No. 136059-8 in the third reading. In addition to the amendments made to the regulation of personal income tax, excises, and severance tax, we would like to draw your attention to the changes in the regulation of VAT on digital services.
According to the bill, foreign entities that provide digital services to legal entities and individual entrepreneurs in Russia will be no longer required to self-assess and pay VAT on these services. In this case, a withholding agent—i.e., a Russian entity that purchases such services—must assess and pay VAT as provided for in Articles 161(1) and 161(2) of the Russian Tax Code.
Foreign entities that provide digital services to individuals will remain obligated to self-assess and pay VAT, if they provide their digital services in Russia. In this case, a foreign entity will still be required to register with Russian tax authorities and self-assess and pay VAT to the Russian budget.
A special procedure will also be established for foreign entities that act as intermediaries in the provision of digital services to individuals in Russia under agency contracts, commission agreements or other similar arrangements with digital service providers. Foreign entities acting as intermediaries that make settlements with individuals directly will be recognized as withholding agents and will be required to assess and pay the tax.
If the bill is passed, the above changes will take effect from the next tax period—i.e., October 1, 2022.
We believe that foreign entities that provide digital services only to legal entities and individual entrepreneurs in Russia will be able to de-register with Russian tax authorities. According to Article 83(4.6) of the Russian Tax Code, a foreign entity may file an application for de-registration with Russian tax authorities within thirty (30) days after the termination of provision of digital services. We believe that this application may be filed as early as October 1, 2022.
If a foreign entity does not de-register with Russian tax authorities, we would not rule out the risk of a Russian counterparty failing to assess VAT and Russian tax authorities recovering it from the foreign entity with respect to any non-digital services that the foreign entity may have provided along with the digital services.
We will keep you informed of any further changes.
If you have any questions left or you would like to discuss something, please send an email to Anton Kabakov.
Sincerely,