Russia: Clarifications concerning VAT exemption for licenses of software and databases

Russia: Clarifications concerning VAT exemption

The Russian tax authorities have issued clarifications regarding changes to the value added tax (VAT) exemption for licenses of software and databases—including explanation of transition to the new rules.

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Background

Amendments to the Russian tax law effective 1 January 2021 include changes to the value added tax (VAT) exemption for the license of software and databases. 

The law was signed by the president in July 2020. Read TaxNewsFlash

The VAT exemption is now applicable to software included under the “unified register” of Russian programs for computers and databases, but does not apply to advertising-related software. Since in most cases foreign companies supplying the software are registered for VAT purposes in Russia, these companies are to start charging, paying, and reporting Russian VAT on the supply of the software into Russia. Moreover, Russian companies distributing this software (in Russia) will not be eligible to apply the VAT exemption and are to charge VAT.

Clarifications

The Russian tax authorities have issued clarifications regarding these changes—including explanation of the transition to the new rules. The VAT exemption applies to:

  • Software used in 2020 regardless of the date of the agreement and payment
  • Software supplied by the foreign companies used in 2020 and paid for in 2021, or used in 2021 but paid for in 2020
  • Payments for periods of using the software before 1 January 2021 in situations of long-term agreements when the software is used both in 2020 and 2021

The Russian tax authorities and Ministry of Finance also clarified how the VAT exemption is to apply if the software is included in the unified register of Russian programs for computers and databases (which is currently not relevant for non-Russian software supplied by foreign companies). In particular:

  • A company in the software supply chain may claim the VAT exemption even if the company does not hold the exclusive rights to the software.
  • The software for digital workflow, review of vendors, customer relationship management (CRM), and content management system (CMS) is not to be treated as advertising-related software and may be VAT-exempt.
  • Advertising and trading platforms (including software enabling access to this platform) are to be treated as advertising software and are not VAT-exempt.
  • The VAT exemption is applicable to the software transferred under a sublicense agreement and through the remote online access (“software as a service”—SaaS).

Rules for inclusion of foreign software in Russian unified register

In addition, there is an initiative to amend the rules for inclusion of the software in the unified register of Russian programs for computers and databases.

Under draft regulations, Russian companies that have exclusive rights to the software or the right to use the software (among other things, for distribution purposes) and whose beneficiaries are foreign persons, may apply for inclusion of their software in the unified register of Russian programs for computers and databases under certain conditions. If the draft regulation is adopted, this may afford opportunities for the inclusion of foreign software in the unified register of Russian programs for computers and databases.


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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