By Sergey Gerasimov
Before the amendment there was a tax benefit for foreign IT
companies – no VAT imposed on electronic services
– which was unavailable to Russian companies. In order
to protect Russian providers and boost competition between
foreign and domestic providers the Russian Parliament has
adopted the so-called "Google tax law".
This law will affect almost all areas of services in the IT
market. Fourteen types of electronic services will be subject
to VAT, including programs, applications and games, databases
and advertising platforms.
Some transactions are excluded from the scope of the law.
Examples include the online sale of goods when such goods are
physically supplied (without the help of the internet), or the
provision of consultancy services per e-mail.
The law increases the financial and administrative burden on
foreign IT companies due to the following.
Registration as a taxpayer with the Russian tax
1) A foreign company that provides electronic
services to Russian individuals (not self-employed
persons) and performing calculations directly with these
2) foreign intermediaries recognised as tax
agents, have to submit a request to Russian tax authorities for
the purposes of registration as a taxpayer of VAT within the
period of 30 days from the beginning of services provision.
If a foreign IT company is providing electronic services
when the new law comes into effect on January 1 2017, it has to
submit the claim within 30 days. Requests can be submitted
personally, by registered mail or by the web site of Russian
tax authorities in electronic form.
Calculation and payment of VAT
Foreign IT companies have to calculate and pay VAT at a rate
of 15.25%, without the right to deduct input VAT. If a foreign
IT company is providing electronic services to Russian
companies, the amount of tax will be withheld by the Russian
company (buyer) as a tax agent.
Providing electronic services through an intermediary
If a foreign IT company wants to eliminate the
administrative burden, it can receive payments for the
electronic services through the foreign or Russian intermediary
(agent or commissioner) performing calculations directly with
the individuals through a Russian branch, e.g. a foreign
payment services provider. This intermediary will become a tax
agent of the foreign company and liable to calculate and
withhold VAT, also without the right to deduct input VAT
If the VAT tax return was not filed on time, the Russian tax
authorities can perform a tax audit on the basis of their
existing documents (information) on the taxpayer, as well as
data on other similar taxpayers. For the purposes of the audit,
tax authorities have a right to request information from money
transfer operators, electronic funds operators, operating
centers, payment clearing centers, central payment
clearing counterparties, settlement centers and mobile
operators on transfer of money to the foreign company.
Conclusion and effect of the new law
The effect on the Russian IT market may appear significant,
because the majority of Russian IT companies provide their
services through a foreign legal entity or an agreement with a
foreign app store. The tax burden will fall on consumers in
Russia and therefore consumption of such services may
One can find similar regulations in the EU, South Korea and
Japan (among others), where electronic services are taxed on
the territory of the country where the consumer lives. However,
the question of whether the "Google tax law" will achieve the
goals of the Russian Parliament is now open and if so, the
Russian government plans to impose VAT not only on e-services,
but also online shops selling goods.
This article was prepared by:
||Sergey Gerasimov, senior partner at
Althaus Consulting, member of WTS Global
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