Foreign companies pay Russian VAT on services in electronic form (“Google tax”).
All foreign companies which provide Russian customers (individuals and business) with services in electronic form are required to independently calculate and pay from such services Russian value added tax (VAT). This requirement also applies to foreign companies acting as intermediaries in provision of such services, if they receive payments from the ultimate customers. Unofficially, this tax payment mechanism is called "Google tax", although it is not a separate tax type and it is not associated with the Google company, but represents a special regime for paying VAT by foreign companies, providing services in electronic form in Russia. Should a foreign company have in Russia its separate unit through which services in electronic form are provided, such a company does not pay "Google tax" and VAT is paid by the separate unit itself in the usual way.
Please note: until 2019 all Russian companies and entrepreneurs independently withheld VAT from payments to the foreign providers of services in electronic form and paid it to the Russian budget. Due to the recent changes in the Russian law, this procedure is no longer applicable and foreign companies must calculate and pay this VAT themselves.
What do the services in electronic form include?
In accordance with the Russian tax legislation, services in electronic form include the following types of services, if they are provided via the Internet (or other information and telecommunications network):
• granting rights to use computer programs (including games) and databases;
• advertising and provision of advertising platforms;
• services for the placement of proposals for purchase and sale of goods (works, services and property rights);
• services of electronic trading platforms (and similar services);
• provision of domain names, hosting services;
• services for the management of information systems and websites;
• provision of services carried out automatically - search, selection and sorting of data, automatic translation, etc.;
• granting of rights to use electronic books, publications, images, music, video and other materials;
• services for finding information about potential buyers;
• provision of access to search engines;
• maintaining statistics on websites.
Services in electronic form do not include:
• sale of goods (works, services), if the order is placed via the Internet and delivered (completed) in the usual way (for example, selling in the online stores);
• implementation and transfer of rights to use computer programs (including games) and databases on tangible media (for example, by foreign licensors);
• consulting services by e-mail;
• provision of access to the Internet.
The obligation of paying "Google tax" occurs when the services in electronic form are sold on the territory of the Russian Federation. The place of sale for such services is determined by the location of the services’ buyer. The electronic service is deemed to be provided to the buyer on the Russian territory subject to any of the following conditions:
for buyers - individuals:
• the buyer lives in Russia;
• payment for the services was made through an account opened with a bank in Russia or through an electronic money operator located in Russia;
• the buyer used the network address registered in Russia when purchasing services;
• the buyer used a phone number with the Russian international code when purchasing services.
for business buyers - companies and entrepreneurs:
• the organization is registered in Russia;
• constitutive corporate documents indicate Russia as the location of the organization (its branch/representative office);
• place of management of the organization/place of its permanent executive body is in Russia;
• permanent representation office of the organization through which the services are purchased is in Russia;
• the entrepreneur is registered or lives in Russia.
Please note: the services rendered within a group of companies also fall under the above-mentioned tax requirements.
Obligations of a foreign company
Russian law imposes the following obligations on a foreign company providing services in electronic form in Russia:
• to file an application for tax registration no later than 30 calendar days from the start of provision of such services. The application can be submitted online on the website of the Federal tax service of Russia. After submission of application, the company is assigned a TIN (identification taxpayer number) and an individual password to the online taxpayer account (personal cabinet);
• to calculate the amount of VAT for each operation of the provision of services in electronic form in the Russian territory. The tax is calculated at the rate of 16.67% from the cost of services paid by the buyer. The cost of services in foreign currency should be converted into Russian rubles at the exchange rate of the Central Bank of the Russian Federation on the last day of the quarter in which the payment was received;
• to indicate the TIN, the tax rate and the amount of VAT in the total cost of services in all contracts and invoices issued for the Russian customers;
• to submit reports to the tax authority: registers of operations on the services provision, as well as a VAT declaration. The VAT declaration is submitted quarterly no later than on the 25th of the month following the reporting quarter;
• to pay VAT to the Russian budget no later than on the 25th day of the month following reporting quarter. A foreign company may transfer VAT from a bank account for abroad, it does not need to open a separate account in a Russian bank.
Please note: errors in the payment documents and tax returns are not allowed, thus you should be very careful while completing them, in particular while indicating the tax codes. Otherwise your obligation to pay VAT will not be deemed completed, which will entail adverse consequences in form of fines and additional inspections by the tax authorities.
Responsibility for non-compliance of the Russian tax legislation
It is important to note that the Russian tax authorities have wide opportunities to control operations falling under the above-mentioned regulations. In accordance with the Russian law, tax authorities can get quick access to information on all payments made to foreign service providers (via banking and payment system). Therefore, we do not recommend considering that the fact of receipt by a foreign company of such payments will go unnoticed, even if the payments are rare.
For violation of the above requirements the Russian law provides for a system of fines:
• for violation of the procedure of tax registration - 10% of income received for the time of conducting a business without registration;
• for non-payment of VAT (or understatement of the amounts to be paid) - 20% of the amount of tax debt or 40%, if the tax is not paid intentionally;
• for failure to submit or late submission of a VAT declaration - 5% of the unpaid tax for each complete or incomplete month of delay.
It should also be noted that a violation by a foreign company of requirements for tax registration and VAT payment also affects the services’ buyers (in the B2B sector). Russian companies acquiring services in electronic form from foreign companies are entitled to tax deduction - reduction of their tax payments for VAT by those tax amounts that are included in cost of purchased services. In order to receive such a deduction, it is necessary to observe the requirements for the processing of documents (contracts, invoices) – they should indicate TIN of the foreign service provider, VAT rate and tax amount in foreign currency. Besides, VAT amount should be highlighted in the payment documents. If a Russian company fails to receive tax deductions, it means an actual increase in the cost of services for this company, which will negatively affect the competitiveness of a foreign service provider in the Russian market.
How we can help you
Given that the procedure of independent payment by foreign companies of the Russian “Google tax” is relatively new, and its regulation is currently developing, the fulfillment of this tax obligation may give rise to some difficulties. Therefore, to avoid violations of the Russian law, significant fines, additional inspections and claims from the tax authorities, specialists of the company “Avakov Tarasov & Partners” are ready to help you by provision of full legal, tax and accounting support of the foreign companies, providing services in electronic form to Russian customers, at all stages, namely:
• tax registration;
• current accounting of operations;
• preparation and submission to the Russian tax authorities of all necessary documents: registers of operations, tax returns, etc.;
• consultations on the procedure for processing of documents (contracts, invoices, etc.);
• representation of the company’s interests in relations with the Russian tax authorities.
 Article 174.2 of the Russian Tax Code.
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