From 1 October 2022, the procedure for paying VAT on electronic services provided by foreign entities in the Russian Federation changes.
Federal Law No. 323-FZ of 14 July 2022 introduced important changes concerning the procedure for paying VAT on electronic services provided by foreign entities.
Since 2019, foreign organisations, when providing B2B electronic services for Russian companies and individual entrepreneurs, were obliged to register under a special simplified procedure with the Russian tax authorities and to pay VAT on such transactions on their own.
The Federal Law No. 323-FZ amends this approach with effect from 1 October 2022 and brings back the procedure that was applicable before 2019: according to the new wording of Article 174.2 of the Tax Code of the Russian Federation, VAT on electronic B2B services must be paid by Russian buyers acting as tax agents. Self-payment of VAT by a foreign organisation will remain only in cases of providing e-services to Russian individuals (B2C).
Corresponding changes have been made to the conditions for deducting VAT on electronic services. While previously a simplified procedure was applied under which only an invoice/agreement (stating the Russian VAT number of the foreign company) and a payment slip to confirm payment for the e-services of a foreign company with an allocated VAT amount were necessary for deduction, starting from October 1, 2022, the general procedure of deduction using a VAT-invoice will apply. At the same time, in accordance with the amendments, tax agents will be obliged to issue VAT-invoices within 5 calendar days of the month following the quarter in which payment for e-services rendered by foreign companies was received.
We also note that the Federal Law No. 323-FZ does not change article 83 of the Tax Code of the Russian Federation stipulating an obligation of foreign companies rendering e-services to get tax registration in the Russian Federation as well as article 174.2 para 8 which stipulates an obligation of foreign companies to regularly submit VAT declarations.
In case you are a foreign company providing electronic B2B services in Russia or – on the contrary – a Russian buyer of such services, we recommend that you contact your counterparties to change the approach to paying VAT from Q4/2022. KBK Accounts is ready to assist you in connection with tax registration in Russia as well as with the preparation of regular VAT returns.
Source: Federal Law No. 323-FZ of 14 July 2022