Starting from January 1, 2017, Federal Law No.244 “On introducing amendments to Part One and Part Two of the Tax Code of the Russian Federation” (the “Law”) takes effect, obliging foreign organizations to pay value added tax (VAT) when rendering electronic services to individuals on Russian territory. The Law has already gained fame as the “Google tax” law.

Pursuant to the Law, e-services are deemed to be services through informational telecommunications networks, including the Internet, in an automated manner using information technology. Such services include, among others, the following:

-      Granting use rights to computer software and databases over the Internet (including computer games, music and movies), including by granting access to them;

-      Rendering advertising services and providing advertising space on the Internet;

-      Providing trade space on the Internet;

-      Providing domain names and hosting services;

-      Granting access to search engines on the Internet;

-      Maintaining statistics on Internet web sites, and other services.

At the same time, the following transactions are not deemed to be e-services:

-      Sale of goods if their delivery is done without using the Internet;

-      Sale of software and databases on media;

-      Services on providing Internet access;

-      Consultation services using email.

For VAT purposes, when rendering e-services to individuals, foreign companies will need to apply to the Russian tax authorities to be placed on record within 30 calendar days from the time they start rendering the e-services.

The Law sets up the procedure for foreign companies to use their personal account on the tax authority’s web site from the time they are placed on record, in order to submit a VAT return and other documents, as well as for other interactions with the tax authority.

Foreign companies will need to pay VAT on e-services using the tax rate of 15.25%, with the tax base being the cost of services, taking into account the tax amount, based on the actual sale prices.

If a foreign company renders e-services to Russian companies and individual entrepreneurs, including middlemen that participate in settlements with the end buyers of the services, such companies and individual entrepreneurs are, for VAT purposes, deemed tax agents and must calculate and pay VAT.

The law also contains provisions governing the tax authority deregistering foreign companies rendering e-services if tax violations are committed, as well as the particulars of holding in-house tax audits in respect to such companies.

Anastasiya Kuzmina   Associate   St. Petersburg   Тел.: +7 (812) 346 79 90

Ekaterina Chernenkova   Associate   St. Petersburg   Тел.: +7 (812) 346 79 90

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Anastasiya Kuzmina or Ekaterina Chernenkova, St. Petersburg Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues. 

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