Russia VAT on foreign digital service update

Update to 2017 requirements, including place of supply and EEU supplies

The Russian Federation imposed the obligation to Value Added Tax register on foreign providers of digital or electronic services from 1 January 2017.

This includes sales of services to consumers and businesses customers, too (Russia is on for the few countries to not use the reverse charge on foreign digital services VAT. On 2 August 2024, Russia’s Federal Tax Service issued Guidance Letter 16-18/081555 clarifying VAT implications for digital services provided by nonresident entities to Russian legal entities.

Russia requires providers of B2B digital services to charge VAT as well as B2C.

Key points from the latest guidance include:

1. VAT Applicability: Under Article 146 of the Tax Code, transactions involving goods, work, services, or property rights in Russia are subject to VAT. Article 148 outlines the procedures for determining the place of sale for VAT purposes, and specifies that digital services are considered sold in Russia if the buyer operates in Russia.
2. Definition of Operating in Russia: The buyer is considered to be operating in Russia if it has a presence there, determined by state registration as a legal entity or private entrepreneur. If not registered, other indicators such as place of management, location of the permanent executive body, or permanent establishment, or in the case of individuals, the place of residence, are used.
3. Tax Agent Responsibilities: According to Article 174.2, section 10.1, a Russian legal entity purchasing these digital services from a nonresident must act as a tax agent, calculating and remitting the VAT due on those services.
4. EEU Member State Transactions: VAT procedures for digital services between Eurasian Economic Union (EEU) member states (Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia) are governed by the 2022 protocol to the 2014 EEU treaty. According to the protocol, indirect taxes are collected in the EEU member country recognized as the place of sale, with the tax base, rates, collection procedures, and exemptions determined by that country’s laws. A digital service provider from one EEU state must register for VAT in the member state where the service is sold.

No VAT registration threshold; B2B cross-border requires registration

There is no VAT registration threshold – providers must register immediately. The current Russian VAT rate is 20%, however, the VAT rate for digital services is 16.67%.

There are no VAT deemed supplier obligations for marketplaces operating in Russia.

What Russian digital services subject to VAT

Russia has imposed VAT on income from the following electronic/digital services

• Download or streaming video, films and music
• Digital newspapers and journals
• E-books and publications and graphical images
• Broadcast television and radio
• Telcom’s services – data and texting
• Automated online translations
• Online gambling and games of chance (‘computer programmes)
• SaaS or cloud-based software, support and data storage
• Subscriptions to news and other content sites
• Web hosting services or online databases
• the advertising services on the Internet, including the use of computer programmes and databases, operating on the Internet and the placement of commercials;
• Automated advertising services on the Internet, including the use of computer programmes and databases, operating on the Internet and the placement of commercials;
• Access to internet search engines

The following services are excluded: supply of goods ordered via the internet; transfer of rights to use computer programmes, including games; and internet access.

Note: from 1 July 2021, non-resident with more than 500,000 Russian users or customers may face Russian foreign digital VAT obligations, including the need to establish a local entity.

Determining if Russian VAT due – place of supply

In order to determine if the services are supplied in the Russian Federation, and therefore liable to VAT, one or more of the following pieces of evidence should be used to determine the location of the consumer:

1. Billing address;
2. IP address;
3. Payment (bank or credit card) address; and
4. Russian telephone country code.

B2B Russian digital services VAT rules

Until January 2019, sales by offshore providers of digital services to Russian VAT-registered businesses were zero-rated. The Russian customer took charge of reporting the VAT via their return under the reverse charge rules.  The foreign customer must now VAT register (although does not necessarily have to charge VAT, see below). Russia is almost unique in not applying the reverse charge in this use case.

Both sides may enter into an agreement for the Russian customer to act as a tax collecting agent. The provider must still complete quarterly VAT returns to report the nil-rated transaction. However, it is possible to avoid this if the foreign provider instead appoints an intermediary.

B2B sales by a non-resident do not require a VAT invoice.

Russian VAT registration and compliance

For reporting the VAT charged on B2C transactions (and B2B invoice details), non-residents are required to register with the Federal Tax Service. They must use a local authorised agent for this process.

B2C sales by a non-resident do not require a VAT invoice.

Simplified VAT returns are filed quarterly. There is no scope for a non-resident to deduct any Russian input VAT suffered. They are due by the 25^th of the month following the quarter end. Any VAT due should be paid at the same time.

Check our global VAT and GST on digital services tracker to see which other countries have introduced indirect taxes on electronic services to consumers.

Europe VAT on digital services