Dentons’ Russia Tax practice would like to remind readers that, starting 1 January 2017, foreign companies providing e-services are required to undergo special tax registration according to the procedure of Clause 4.6 of Article 83 of the RF Tax Code, to file tax reporting and to pay VAT on such transactions.
Who is affected?
The list of VATable e-services is contained in Article 174.2 of the RF Tax Code. A foreign provider becomes obligated to register for tax purposes when providing those services only if all of the following conditions are met:
- the services are provided to individuals who acquire them for their own personal or domestic needs (i.e., not for business);
- the foreign provider does not provide the services via its separate subdivision in the RF;
- the foreign provider does not provide the services through an intermediary directly participating in settlements with individuals (otherwise the tax agent performs the obligations to remit tax).
What needs to be done?
In order to register for tax purposes the foreign company must file an application for tax registration. Formally this can be done in one of three ways:
- in person (or through a representative);
- by mail (with delivery confirmation);
- electronically (via the website).
Interdistrict Inspectorate for Major Taxpayers of the Federal Tax Service No. 7 is responsible for tax administration of companies providing e-services.
The foreign e-services provider is registered for tax purposes within 30 days of filing the application, which is confirmed via the notification sent to the e-mail address indicated in the application. Within the same deadline the company receives access to a taxpayer online account (VAT online office), through which the company then interacts with the tax authority (e.g., files the tax returns3 and other tax reporting).
Companies must have a non-certified electronic digital signature (EDS) in order to meet the obligations for filing tax reporting. A contract to obtain an EDS should be concluded with an authorized service company.
What difficulties might arise?
Due to the fact that these procedures are new for the Russian tax system, foreign e-service providers may encounter a number of practical difficulties in obtaining special tax registration, filing tax reporting and paying tax. Among those are the following:
- On the date of this alert the registration application form and the procedure of its completion have not yet been approved.
- The RF Tax Code stipulates registration on the basis of an application and other documents (Clause 4.6 of Article 83 of the RF Tax Code). The list of such “other documents” has also not been approved.
- An EDS is required to file tax reporting. However, not all the service companies providing EDS could be ready to provide them to foreign legal entities.
- In addition to the tax return, transaction registers containing information about e-services provided during the tax period should also be submitted (Clause 5 of Article 148 of the RF Tax Code). The forms and the procedure of completion of those registers have not been approved to date.
- Tax must be paid in rubles. In that case the question arises of the need to open an account with a Russian bank and whether it is possible to pay the tax from a foreign bank account.