Federal Law No. 244-FZ of 3 July 2016 substantially amended Article 148 of the RF Tax Code and a number of other provisions of the code aimed at adjustment of the place of supply rules for VAT purposes as applied to the electronic Services provided by foreign companies ("e-Services"), and of other tax aspects of providing e-Services. The major part of the new law's provisions entered into force on 1 January 2017.

Two key points that have radically changed the procedure of VAT taxation of e-Services can be outlined as follows:

  1. Setting of a separate list of e-Services (clause 1 of Article 174.2 of the RF Tax Code).
    Now e-Services are in a separate category of services specifically addressed in Article 148 of the RF Tax Code. If previously VAT was not charged in Russia on some of the services that are now in the list of e-Services, starting 1 January 2017 all such services are subject to VAT if the customer is located in Russia.
    Almost all possible forms of work, services or provision of rights to IP via the Internet (including selling of computer programs, facilitation in conclusion of deals, processing, storing and sorting of information, provision of domain names, hosting services, etc.) are on in the list. The following services were specifically left out of the list of e-Services:
    • Supply of goods, performance of work, provision of services ordered online without using the Internet;
    • Selling of computer programs (including games) on tangible media;
    • Providing advisory services by email;
    • Providing Internet access services.
  2. Setting of a special procedure of performing the liabilities to pay VAT on e-Services.
    First of all it should be noted that the amendments have not affected how e-Services provided to companies and entrepreneurs are taxed. VAT on such services is withheld by the tax agent at the source of payment.
    As for e-Services provided to individuals who are not entrepreneurs, VAT is charged on such services, if those individuals carry out activity in Russia. A person is considered to carry out activity in Russia if he or she (1) resides in Russia or (2) uses a Russian bank account for purchasing purposes, or (3) purchases services using a Russian IP address or (4) a Russian telephone number.
    The general rule is that in order to comply with their VAT obligations foreign companies providing e-Services are required to obtain special tax registration. Upon registration a foreign supplier receives a taxpayer identification number and access to the taxpayer's online account through which it files tax reporting related to provision of e-Services (a special form of VAT return and transaction registers).
    The Code also provides for a special way of paying VAT if an intermediary collects payments from the customers on behalf of the supplier. In this case the intermediary acts as the tax agent and remits tax to the budget.

The tax rate on e-Service-related transactions is 15.25%. The tax base is calculated as the cost of the service determined based on its actual (i.e., set in the contract) selling price. The tax base is determined on the last day of the quarter in which payment (or partial payment) for the service was received. Currency proceeds are converted into rubles on the same date.

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