Moscow enacted a law ordering certain foreign companies engaged in online sales of electronic content in Russia to pay the value-added tax (VAT). (Foreign providers of electronically supplied services.)
The law, informally known as the “Google Tax,” stipulates the introduction of an 18% VAT for foreign companies providing services to Russians in electronic form. Foreign companies will need to register on the Russian tax service’s special electronic index and pay taxes on an equal footing with Russian companies operating in the same market segment. Before the law was passed by the Russian Parliament, no VAT was imposed on electronic services supplied by foreign companies. This tax break wasn’t available to Russian companies.
If a foreign company has a Russian division or a contractor in the country, it will be responsible for paying the tax irrespective of whether it has an appropriate agreement with foreign corporations or not.
If the buyer carries out activities on the territory of the Russian Federation and acquires the “services in electronic form,” the place of supply of these services is the territory of the Russian Federation. Delivery of physical goods ordered over the internet is not subject to the VAT.
Article 148 of the Russian Tax Code determines the location of the sale of services for the application of VAT. Since Article 148 doesn’t explicitly mention services provided by a foreign organization, the location of the supply of services rendered by a foreign organization to Russian organizations (individual entrepreneurs) isn’t recognized as the Russian Federation and, therefore, these services aren’t subject to Russian VAT.
If a VAT return isn’t filed on time, tax authorities can audit the company on the basis of their existing information on the taxpayer, as well as data on other similar taxpayers. The authorities can request information from money transfer operators, electronic funds operators, and payment clearing centers, among others.
Services in electronic form will include services provided through the Internet, such as technical, organizational, informational and other features implemented with the use of information technologies and systems, to establish contacts and transactions between sellers and customers.
The law is effective as of January 1, 2017.