Non-electronic services by e-services providers: VAT payment procedure

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Dentons’ tax experts are keeping you posted on the latest news regarding payment of VAT on electronically supplied services (“e-services”). Today, we would like to elaborate on the topic in the light of article 161 of Russian Tax Code (“RTC”). This provision states that Russian companies should withhold VAT (act as a tax agent in the terms of the RTC) for goods/services supplied from Russian territory only if the foreign supplier does not have Russian tax registration.

At the same time, clause 4.6 of article 83 of the RTC states that foreign e-services suppliers should be registered as taxpayers. In this case, the foreign company will obviously have to account for VAT on e-services itself. This is directly prescribed by article 174.2 of the RTC. But who should account for the non-electronic services often provided by a company that supplies e-services?

In public discussions, several tax experts have expressed the opinion that foreign e-services providers registered for VAT will have to account for non-electronic services themselves as well. In other words, starting from 01.01.2019 a Russian company will not withhold VAT on non-electronic services supplied by a foreign e-services provider registered in Russia.

According to our information, the Federal Tax Service (“FTS”) unofficially supports the above position. The FTS should issue the respective confirmation letter shortly. Under this approach, a foreign e-services provider will still be able to carry out compliance procedures via its online taxpayer’s account, and the VAT return form will be updated to make the filing procedure convenient.

If the above approach is officially confirmed, foreign e-services providers will not only be required to register with the Russian tax authorities, but will also have to account for all services they provide to Russian customers (including non-electronic services).

Please note that foreign e-services providers must register for VAT no later than 15.02.2019. A number of foreign companies have already applied for registration to make sure their ERP-systems are duly updated by 01.01.2019 (when the new procedure takes effect).

Dentons’ tax experts have considerable experience of working with Russian tax authorities in respect of registration of e-services providers. We are always ready to provide you with comprehensive legal support in connection with the following issues:

  • Assessment of intra-group services to determine whether they meet the definition of e-services, or whether such services are exempted from taxation under the provisions of article 149 of the RTC;
  • Applications to the tax authorities for the clarification letters in respect of VAT on e-services;
  • Tax registration in Russia for foreign e-services suppliers;
  • Calculation of VAT payable, preparation and filing of electronic tax returns.