Russia: Draft legislation would expand when VAT payable by tax agents

Russia: VAT payable by tax agents

Draft legislation proposes amendments to the Russian tax law regarding the remittance of value added tax (VAT) by tax agents.

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Background

Currently, when a foreign company supplies goods or services (or work) that are subject to VAT (except for services provided in electronic form), the following rules apply:

  • If the foreign company is not registered with the Russian tax authorities, VAT is to be remitted by the tax agent. In other words, VAT is paid by the customer (legal entity or individual entrepreneur) registered with the Russian tax authorities (different rules apply if the transaction is completed through an intermediary registered with the Russian tax authorities and the activities involve remitting payments under an agreement for delegation, commission or agency concluded with the foreign supplier)
  • If the foreign company is registered with the Russian tax authorities on any basis (even if the company does not have a presence in Russia), the foreign company is to remit the payment of VAT. 

Proposed changes

As proposed, the measure would effectively return to the VAT payment mechanism for tax agents that previously applied before a 2016 court decision that resulted in a change to the process by the Russian Ministry of Finance in 2018.

If the proposal is finalized, there would be implications for business.

For Russian companies (customers or intermediaries):

  • Russian companies would need to identify instances when they act as tax agents (to pay VAT and perform the other obligations of a tax agent including the issuance of VAT invoices, report VAT amounts on VAT returns, etc.). The tax authorities would impose penalties for noncompliance.

For foreign companies (suppliers):

  • The administrative burden of foreign companies would be reduced—in particular, companies would not need to remit VAT, issue VAT invoices, and reflect VAT amounts on their VAT returns.
  • Foreign companies having subsidiaries or divisions in Russia would need to identify and deal separately with instances when VAT is to be paid by a tax agent, and when VAT is to be paid by a subsidiary.
     

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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