Russia: VAT and sales of software, digital technology

Russia: VAT and sales of software, digital technology

The State Duma on 21 July 2020 adopted a draft law that is intended to support the digital technologies sector with a change to the application process for an exemption from value added tax (VAT).

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Currently, the VAT exemption applies to the sale of exclusive rights to software and databases and to the rights to use them based on a license agreement.

The draft law includes the following amendments:

  • The VAT exemption would apply to software and databases listed on a register of Russian programs for computers and databases.
  • The VAT exemption would apply to the sale of rights to use the software (including updates and additional functionality) through remote online access.
  • The VAT exemption would not apply if the software rights relate to “advertising software.”

These amendments are scheduled to be effective 1 January 2021.

If finalized in its current version, the draft law would have consequences for business.

  • For businesses that are Russian companies, whether the changes would apply would depend on whether the software is listed in the register or not.
  • For foreign companies, sales of software to Russian customers would be subject to VAT. In most cases, the foreign suppliers of software would need to be registered with the Russian tax authorities, and these suppliers would then need to begin changing and paying VAT in Russia on the sale of software to Russian customers. The Russian customers of the software then might be able to recover the input VAT if the software is acquired for an eligible activity. Additional VAT costs would further arise in situations when the sale of the software is to certain types of companies (for example, banks, insurance, and healthcare companies) and to individuals.

There are certain action steps that potentially affected companies could consider.


For more information, contact the head of KPMG’s Global Indirect Tax Services:

Lachlan Wolfers | +852 2685 7791| lachlan.wolfers@kpmg.com

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