VAT on electronic services provided by foreign companies to Russian customers

Electronic services provided by foreign companies in Russia are subject to VAT. In order to exercise tax control over such transactions, the tax legislation provides for the obligation to tax register foreign organizations that are providers of electronic services or intermediaries involved in settlements.

The procedure for calculating and paying tax, as well as its declaration depends on who is the recipient of the services: an individual, an organization or an individual entrepreneur.
From October 01, 2022, the obligation to independently calculate, pay and declare tax by foreign service providers or intermediaries involved in settlements is provided for if such services are provided to individuals.
If the consumer of electronic services is a Russian organization or individual entrepreneur, it is recognized as a tax agent and shall calculate, pay and declare tax. Until October 01, 2022, these duties were performed by foreign companies themselves.

Which foreign companies must undergo tax registration in connection with the provision of services in electronic form?

Criteria that determine the need for tax registration of a foreign company:

• The company is a provider of electronic services or an intermediary participating in settlements, is registered outside the Russian Federation and does not have separate subdivisions in Russia;
• The service purchaser is located in Russia;
• Services are provided in electronic form.

What services are services in electronic form?

Services in electronic form are services provided through the information and telecommunications network, including through the Internet information and telecommunications network, automatically using information technology.

Services in electronic form include:

• granting rights to use programs and databases via the Internet, updates to them and additional functionality;
• provision of advertising services on the Internet, provision of advertising space on the Internet;
• provision of services for placing proposals for the purchase of goods (works, services), property rights on the Internet;
• provision of services via the Internet for establishing contacts and concluding transactions between sellers and buyers;
• providing, maintaining a commercial or personal presence on the Internet, maintaining sites, user pages on the Internet, providing access to them for other network users, providing users with the opportunity to modify them;
• storage and processing of information provided that the person who submitted this information has access to it via the Internet;
• real-time provision of computing power for placing information in the information system;
• provision of domain names, provision of hosting services;
• provision of services for the administration of information systems, sites on the Internet;
• provision of services carried out via the Internet when data is entered by the buyer of the service, automated services for data search, their selection and sorting upon request, provision of data to users through information and telecommunication networks;
• granting rights to use electronic books (publications) and other electronic publications, information, educational materials, graphic images, musical works, audiovisual works via the Internet, including providing remote access to them for viewing or listening via the Internet;
• providing services for searching and (or) presenting to the customer information about potential buyers;
• providing access to search engines on the Internet;
• maintaining statistics on sites on the Internet.

Services in electronic form do not include:

• sale of goods (works, services), if when ordering via the Internet, their delivery is carried out without using the Internet;
• sale of (transfer of rights to use) programs (including computer games), databases on tangible media;
• provision of consulting services by e-mail;
• provision of services to provide access to the Internet.

What is to be done if a foreign company is obliged to pay VAT on services in electronic form?

Tax registration shall be carried out on the official website of the Federal Tax Service of the Russian Federation Registration and taxation for foreign organizations (nalog.ru)

A personal account is opened on the specified website for the company;

To register, it is necessary to complete a number of documents.

In its personal account, the company will be able to provide quarterly tax returns, where it is also possible to find bank details for transferring tax.

An application for registration shall be submitted by foreign companies no later than 30 calendar days from the date of commencement of rendering electronic services.

Tax returns shall be submitted and VAT shall be paid by the 25th day of the month following the reporting quarter. From January 01, 2023, the tax payment deadline will be the 28th day of the month following the reporting quarter, while the declaration deadline will not change.

What happens if the company does not file an application for tax registration within the prescribed period?

In case of non-compliance with the registration rules, the following penalties shall apply:

• for violation of the deadline for filing an application for registration with a tax authority — RUB 10,000;
• for conducting activities without registration with the tax authority — 10 percent of the income received as a result of such activities, but not less than RUB 40,000.

Konsu support

We can provide comprehensive assistance, including:

• help prepare all the necessary information for tax registration of a foreign company:
• ensure timely submission of the necessary reporting, and, if necessary, explanations to state bodies;
• answer your questions, including those arising in connection with changes in the tax legislation, which we regularly monitor.

This will allow your company to conduct its business in Russia safely, as well as respond in a timely manner to changes in the legislation.