The president on 31 July 2020 signed into law legislation (Federal Law No. 265-FZ) that amends the Russian tax law to provide an exemption from value added tax (VAT) for the IT or digital sector. The new law addresses how the VAT exemption applies for software and databases.
In part, the new law relates to the VAT exemption for software and databases. The measures were adjusted during consideration of the legislation by the Russian State Duma. Read TaxNewsFlash
The final version of the law does not refer to license agreements as a condition for application of the VAT exemption. Once effective, the VAT exemption is to apply to software and databases (i.e., those listed on the unified register of Russian programs for computers and databases, with the exception of “advertising software”) provided under certain types of agreements other than just license agreements (e.g., franchising agreements and “mixed agreements” containing license and service elements). However, applicability of the VAT exemption to “software as a service” (SaaS) is still an open question.
The VAT exemption will apply to the provision of rights to use software and databases that are listed in the unified register of Russian software and database. The VAT exemption will apply to the rights to use the software and databases (including updates and additional functionality) through remote online access.
The VAT exemption will not apply if right to use the software or databases consist of the receipt of an opportunity to disseminate advertising information via the internet and/or to receive access to it; to post offers regarding the acquisition (sale) of goods (including services), property rights in the internet; to search for information on potential buyers (sellers) and/or to conclude transactions (in general, advertising software).
For software listed in the unified register, the provision of exclusive rights and rights to use software (except for advertising software) under a license agreement will be VAT-exempt.
A provision of rights to use the software (but not advertising software) including updates and additional functionality under mixed and franchise agreements would be VAT-exempt.
Concerning SaaS, it is still not clear if the VAT exemption would apply.
Additional VAT costs would arise with regard to software sold to certain companies (e.g., banks and insurance and healthcare companies), SMEs applying special tax regimes, and individuals.
Concerning the VAT exemption for software and databases, what action steps are to be considered?
For more information, contact the head of KPMG’s Global Indirect Tax Services:
Lachlan Wolfers | +852 2685 7791| firstname.lastname@example.org
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.