Russia VAT, GST, and Sales Tax Guide

Russian Federation

Moscow

A. At a glance

Name of the tax

Value-added tax (VAT)

Local name Nalog na dobavlennuyu stoimost (NDS)

Date introduced 6 December 1991

Trading bloc membership World Trade Organization (WTO)

Eurasian Economic Union (EAEU)

Commonwealth of Independent States (CIS)

Asia-Pacific Economic Cooperation (APEC)

Shanghai Cooperation Organization (SCO)

Black Sea Economic Cooperation (BSEC)

Union State of Russia and Belarus

Administered by Ministry of Finance of the Russian Federation (http://www.minfin.ru)

Federal Tax Service (http://www.nalog.ru)

VAT rates

Standard 20%

Reduced 10%, 16.67%

Other Zero-rated (0%) and exempt

VAT number format

Tax identification number (TIN) with 10 digits

VAT return periods Quarterly

Thresholds

Registration None Recovery of VAT by non-established businesses No

B. Scope of the tax

VAT applies to the following transactions:

• The supply of goods (works and services) performed in “the territory of the Russian Federation and other territories under its jurisdiction” by a taxable person

• The transfer of property rights by a taxable person

• The performance of construction and installation and assembling of works for own consump tion

• The importation of goods into “the territory of the Russian Federation and other territories under its jurisdiction” regardless of the status of the importer

“The territory of the Russian Federation and other territories under its jurisdiction” means the territory of the Russian Federation and the territories of artificial islands, installations and structures over which the Russian Federation exercises jurisdiction in accordance with the legislation of the Russian Federation and provisions of international law.

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In general, supplies of goods (works and services) in the Russian Federation are within the scope of Russian VAT. The following goods are deemed to be supplied in the Russian Federation:

• Goods located in the Russian Federation and other territories under its jurisdiction that are not shipped or transported

• Goods located in the Russian Federation and other territories under its jurisdiction at the moment when shipment or transportation begins

Inland Russian transportation carried out by foreign companies that are not registered with the Russian tax authorities is subject to Russian VAT. VAT withholding formalities must be per formed by the Russian customer of the foreign transport service provider.

Works and services that are not specifically covered in the relevant section of VAT law are deemed to be performed at the place of the supplier’s activity.

C. Who is liable

In general, a taxable person is any individual entrepreneur or legal entity (including a foreign legal entity) that makes taxable supplies of goods (works and services) and/or property rights in the territory of the Russian Federation and other territories under its jurisdiction in the course of its business activities or that conveys goods into the territory of the Russian Federation and other territories under its jurisdiction.

All taxable persons are subject to tax registration. Generally, a separate VAT registration is not permitted. A separate VAT registration is permitted only for foreign legal entities providing elec tronic services.

Exemption from registration. As outlined above, no VAT registration threshold applies in the Russian Federation. However, a legal entity or individual entrepreneur may be exempted from the fulfillment of obligations associated with the calculation and payment of VAT. Exemption may apply if, in the last three consecutive calendar months, revenue from the sale of goods (works and services) did not exceed a total of RUB2 million.

Such exemption from VAT payment obligations is granted on submission of special notification to the tax authorities together with supporting documentation proving entitlement. A legal entity or individual entrepreneur that is granted exemption is not required to charge VAT or submit VAT returns, but it is restricted in its ability to recover input tax on purchases.

Private entrepreneurs and legal entities that are applying the simplified taxation system (includ ing private entrepreneurs who are eligible to apply a patent tax regime) are also exempt from VAT payment obligations, except for payment of VAT at customs and VAT payable when acting as a tax agent under the reverse-charge mechanism.

Voluntary registration and small businesses. The VAT law in Russia does not contain any provi sions for voluntary tax registration, nor special VAT registration rules for small businesses.

Group registration. Group VAT registration is not allowed in the Russian Federation.

Non-established businesses. A “non-established business” is a business that does not have a fixed establishment in the Russian Federation. A foreign legal entity or non-established business may be required to register for tax purposes in the Russian Federation.

In the Russian Federation, a separate VAT registration is permitted only for foreign legal entities providing electronic services. For other foreign legal entities, the obligation to register with the Russian tax authorities arises if a foreign legal entity performs activity in Russia through a branch, a representative office or any other separate subdivision.

If a foreign legal entity performs its activities in Russia through a branch or a representative office, it must file for accreditation of its branch or representative office. The obligation to reg ister also arises if a foreign company owns immovable property or transport vehicles in the Russian Federation or opens a bank account with a Russian bank.

If a foreign legal entity is not registered for tax purposes, the recipient of the supply must act as a tax agent and withhold the VAT due. A foreign legal entity that is not registered in the Russian Federation is not entitled to recover any input tax (VAT on purchases).

On tax registration, a foreign legal entity must act as a common VAT taxable person and is eli gible to recover the input tax incurred in the Russian Federation if the VAT recoverability condi tions outlined in Section F are met.

A foreign legal entity providing electronic services that is registered for VAT purposes – is not eligible to recover input tax.

Tax representatives. Tax representatives are not required in the Russian Federation.

Reverse charge. Reverse-charge VAT is applied to payments for goods, works and services sup plied by foreign legal entities to Russian legal entities or individual entrepreneurs. Under the reverse charge, the liability to withhold and pay VAT rests with the recipient of the supply that acts as a tax agent. The reverse charge applies if the place of supply for the goods (works and services) is the Russian Federation and:

• The foreign legal entity is not registered as a taxable person in the Russian Federation

• The foreign legal entity is registered with the tax authorities only due to the location of immov able property and/or vehicles belonging to them at the Russian territory or due to the opening of a bank account Or

• The foreign legal entity is registered with the tax authorities at the location of their subdivisions on the Russian territory (except cases for the sale of goods i.e., works, services, through that subdivision of a foreign legal entity located on the Russian territory)

In the Russian Federation, reverse-charge VAT is treated as a withholding tax. In practice, contracts entered into between a Russian legal entity and a foreign legal entity normally contain a “gross-up” provision to ensure that the net payment to the foreign legal entity is not reduced by VAT payable in the Russian Federation and that it equals the agreed contract price for the sup plied goods (works and services).

Domestic reverse charge. The domestic reverse charge obliging the recipient of goods (works and services) to account for and pay VAT due acting as a tax agent applies in the following situations:

• Where government, administrative and local government bodies rent federal property, property of constituent entities of the Russian Federation and municipal property in the territory of the Russian Federation

• Where a vessel supplied in the territory of the Russian Federation is not registered in the Russian International Register of Vessels within 90 calendar days after the ownership of the vessel is transferred from the taxable person to a client

• Where taxable persons (other than taxable persons exempt from performing VAT obligations) sell in the territory of the Russian Federation raw hides and skins of animals, scrap and waste of ferrous and nonferrous metals, secondary aluminum and alloys thereof and wastepaper

Digital economy. The place of supply for electronic services should be determined at the buyer’s location. If a customer is an individual (business-to-consumer [B2C] supply) or a legal entity (business-to-business [B2B] supply), a foreign legal entity providing electronic services is required to register for VAT purposes in Russia, charge and pay VAT with respect to such supplies as well as perform VAT reporting obligations.

With respect to B2B supplies, Russian legal entities purchasing electronic services from foreign suppliers are not obliged to withhold VAT as tax agents. However, the parties may rely on the official (nonbinding) clarification of the Federal Tax Service: if a service provider did not charge VAT to the Russian customer and the latter acted as a tax agent (voluntarily) and claimed VAT for recovery, the tax authorities would not have grounds to require the foreign company to pay the VAT again, nor would they be able to require the customer to recalculate its tax obligations (VAT charged and VAT reclaimed). Thus, if both parties agree, the Russian customer may con tinue to voluntarily act as a tax agent and pay VAT on electronic services. However, even if VAT is paid by the Russian customer, the foreign supplier is still required to VAT register and submit quarterly nil VAT returns (if there are no other transactions to be reported). The foreign supplier still bears the responsibility in the case of nonpayment of VAT to the budget and should, on the tax authorities’ request, provide the documents proving that VAT was paid by the Russian cus tomer.

The foreign legal entity is not required to register if it provides electronic services through inter mediaries (both Russian and foreign legal entities) that participate in settlements with Russian customers and have agency, commission or other similar agreements with foreign legal entities providing electronic services. In this case, the intermediaries should bear the VAT obligations.

From 1 January 2022, international IT companies that collect a large amount of data from Russian users (more than 500,000 Russian users per day) are required to open a subdivision (e.g., representative office, branch) and, therefore, should be registered with the Russian tax authorities.

For details on the VAT registration process, refer to the subsection Registration procedures below. Once registered for VAT in Russia, the foreign supplier should account for and pay VAT on all supplies of goods (works and nonelectronic services) subject to VAT in Russia.

For these purposes, electronic services include, amongst others:

• Provision of rights to use computer programs via the internet

• Provision of internet advertising services

• Provision of services involving the posting of offers to acquire goods and property rights on the internet

• Provision and/or maintenance of a commercial or personal presence on the internet

• Storage and processing of information on the internet

• Provision of hosting services

• Sale of electronic books, graphic images and musical works via the internet

• Provision of access to internet search engines and the maintenance of statistics on internet sites

There are no other specific e-commerce rules for imported goods in the Russian Federation.

Online marketplaces and platforms. From 1 January 2021, the VAT exemption upon granting of rights to access online marketplaces or platforms and post offers to acquire goods and property rights thereon will no longer apply, and instead this will be subject to the full rate of VAT (20%). There are no other special rules or VAT obligations for online marketplaces and platforms.

Registration procedures. Tax registration of an accredited branch or representative office of a foreign organization is carried by tax authorities based on respective data from the registry of accredited branches and representative offices. Accreditation procedures take at least 25 working days to fulfill. A foreign organization receives the notification of tax registration in five working days.

A foreign organization must file an application to register its separate subdivision, which is neither branch nor representative office, not later than 30 calendar days from the beginning of its activities in the Russian Federation. The format of the application is set by the Federal Tax Service. The application should be submitted by an authorized representative of the organization

acting under a power of attorney. Together with the above application, a foreign organization must file the following documents:

• Its constitutive document

• An extract from the register of foreign legal entities confirming the legal status of a founder of a foreign organization

• An application confirming registration of a foreign legal entity with its tax authorities

• A document confirming a decision of an authorized body of a foreign legal entity to register a subdivision and a subdivision-establishing document (or a contract under which a foreign legal entity performs its activity in the Russian Federation if no subdivision is created in the Russian Federation)

After registration, the foreign legal entity gets access to a personal taxable person office that will enable it to submit returns, pay VAT and communicate with the tax authorities.

All documents are submitted in hard copies. It is not possible to submit for tax registration online. Deregistration. Deregistration is performed in cases of termination of activities or closing of a branch, representative office or other separate subdivision of a foreign organization.

Deregistration of a branch or representative office is performed by tax authorities based on respective data from the registry of accredited branches, representative offices.

Deregistration of a separate subdivision of a foreign organization is performed by tax authorities based on an application submitted by the taxable person. Tax authorities perform deregistration in 10 working days after receiving the application.

Changes to VAT registration details. Note that a separate VAT registration is available only for foreign providers of e-services. For all other taxable persons, they are subject to the general tax registration.

For general tax registration in case there are any changes in the registration details, the taxable person is obliged to notify the tax authorities within seven business days. The taxable person can notify the mentioned changes by submission of a notice in a hard copy (by post or to the autho rized public authorities) or in an electronic format under generally applicable rules.

Foreign suppliers of digital services should notify the tax authorities about changes in their VAT registration details by submission of a request in the personal account at the official federal tax service’s website.

Noncompliance with these rules, including the timing, triggers the application of fines on the tax able person.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero-rate.

The VAT rates are:

• Standard rate: 20%

• Reduced rates: 10%, 16.67%

• Zero-rate: 0%

The standard rate of VAT applies to all supplies of goods or services unless a specific measure provides for a reduced rate, the zero-rate or an exemption.

Examples of goods and services taxable at 0%

• Exports of goods and related services including logistic services

• International freight-forwarding services

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• Supplies to diplomats (if reciprocal arrangements apply)

• Foreign passenger transportation services

• Works (services) performed by Russian rail carriers involving the carriage or transportation of goods that are exported from the territory of the Russian Federation and the removal from the customs territory of the Russian Federation of products of processing in the customs territory of the Russian Federation

• Works (services) connected with carriage or transportation mentioned in the item above, the cost of which is specified in documents of carriage for the carriage of the goods that are exported (processed products that are removed)

• The sale of raw hydrocarbons extracted from the continental shelf, exclusive economic zone and the Russian sector of the Caspian Sea to a destination outside Russia and exportation of goods (stores) for further use in extraction of hydrocarbons from offshore hydrocarbon depos its and certain related transportation services

Examples of goods and services taxable at 16.67%

• Electronically supplied services

• Transfer of going concern

Examples of goods and services taxable at 10%

• Basic foodstuffs

• Certain children’s goods

• Medical goods

• Pedigree cattle

The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Financial services on granting of loans

• Rendering of services involving insurance, coinsurance and reinsurance of export credits and investments against entrepreneurial and/or political risks

• Public transport

• Medical services

• Lease of office premises and housing to accredited representative offices of foreign entities (if reciprocal arrangements apply)

• Sale of houses, living accommodation and shares in them

• Provision of exclusive rights or license rights to use with respect to software and databases included in the Unified Register of Russian software and databases (except for software or database allowing distribution of advertising on the internet and access to marketplaces)

• Services rendered by a developer under a shared-construction agreement for the construction of residential properties (except for services rendered by a developer with respect to the con struction of objects for production needs)

• Various financial services provided by the licensed institution

• Certain imports, for example:

Goods for commercial use that cost less than EUR200

Goods for personal use that cost less than EUR200

Goods imported as gratuitous aid according to the government list

Medical products according to the government list

Cultural property imported as a gift for Russian cultural institutions

Periodic materials imported as a gift for Russian libraries

Option to tax for exempt supplies. Taxable persons have an option to tax a certain group of exempt supplies. It is not permissible for such operations to be exempted or not depending on who is

purchasing the goods, work and services. An exemption from taxation may not be rejected or sus pended for a period of less than one year.

The following are examples of exempt supplies that can be opted to tax:

• Banking operations (with the exception of encashment)

• Services associated with the servicing of bank cards

• Insurance, co-insurance and re-insurance services

• Sale of ore, concentrates and other industrial products containing precious metals

E. Time of supply

The moment when VAT becomes due is called the “time of supply.” For taxable persons, the time of supply is the earliest of the following dates:

• The date when goods (works and services) or property rights are dispatched (transferred)

• The date on which payment or partial payment is made with respect to the future supply of goods, performance of work, rendering of services or transfer of property rights

With respect to the supply of electronic services by foreign companies, the time of supply is the date on which payment for services is received.

Deposits and prepayments. For advance payments, there are two times of supply – when the advanced payment is made and when the goods (works and services) are dispatched (transferred). The normal time of supply rules mean that taxable person should account for and pay VAT twice. However, no double taxation occurs, since VAT paid by the taxable person at the moment of receipt of an advance payment may be refunded by the taxable person at the moment of dispatch (transfer).

Continuous supplies of services. There are no special time of supply rules in the Russian Federation for supplies of continuous supplies of services. As such, the general time of supply rules apply (as outlined above).

Goods sent on approval for sale or return. There are no special time of supply rules in the Russian Federation for goods sent on approval for sale or return. As such, the general time of supply rules apply (as outlined above).

Reverse charge. When the reverse-charge mechanism is applied, VAT should be paid by the tax agent to the Russian budget simultaneously with the transfer of payment to the supplier of goods and services.

Leased assets. For VAT purposes, a lease of goods is treated as a supply of services, provided that the legal title on the goods is not transferred to the recipient. In this case, the general rules on time of supply are applicable. If a lessee purchases the leased property at the end of the lease, such transfer of property will be considered as a supply of goods and the moment of determina tion of VAT based on the supply of the goods involved.

Imported goods. The time of supply for imported goods is the date of importation.

F. Recovery of VAT by taxable persons

A taxable person may recover input tax, which is charged on goods (works and services) and property rights supplied for carrying out activities within the scope of VAT.

The time limit for a taxable person to reclaim input tax in the Russian Federation is three years. The input tax can be recovered within three years from the date when the right to recover such input tax appears (except for the deduction of VAT from the amounts of advance payments; VAT amounts paid by a tax agent).

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There is an exception to the above general rule, specifically, taxable persons have the right to recover input tax on goods and services used in the provision of services that are not deemed to be supplied in the Russian Federation based on the applicable place of supply rules. There are no restrictions relating to the business sector or location of the purchasers of exported services. The new regime would not, however, extend to services classed as exempt supplies, as they are estab lished in the Russian Tax Code.

A taxable person generally recovers input tax by deducting it from output tax, which is VAT charged on supplies made.

Input tax includes VAT charged on goods (works and services) and property rights supplied in the Russian Federation, VAT paid on imports of goods, and VAT paid to the Russian budget by a buyer acting as a tax agent with respect to the acquisition of goods (works and services) from a foreign legal entity.

VAT is recoverable after the goods (works and services) or property rights have been received and a VAT invoice has been obtained from a supplier. The same procedure applies to VAT incurred on construction (including construction carried out by the taxable person for its own use) and creation of intangible assets. For a prepayment to a supplier, the buyer may recover VAT on such prepayment (that is, before the relevant goods, works and services are received by the buyer).

The amount of VAT reclaimed must be indicated separately on a VAT invoice (a special document established exclusively for VAT purposes) issued in conformity with the provisions of the Russian Federation VAT law.

A legal entity and individual entrepreneur registered in Russia and purchasing electronic ser vices from a foreign legal entity providing electronic services has the right to claim VAT charged by the supplier. To execute the right to recover VAT, the following documents should be in place: (1) agreement and/or a settlement document with separately specified VAT, the identification number (INN) and code of the reason for VAT registration of the supplier (KPP); and (2) documents for the transfer of payment, including VAT to the supplier.

Nondeductible input tax. Input tax cannot be recovered on purchases of goods (works and ser vices) and property rights that are not used for making supplies within the scope of VAT (for example, goods purchased for private use by an entrepreneur), except the supply of services outside of the Russian Federation and not falling within the list of exempt transactions (as described above). In addition, input tax cannot be fully recovered with respect to some business expenses (that is, expenses that are limited for profits tax deduction).

Examples of items for which input tax is nondeductible

• Personal expenses

• Home telephone expenses

• Parking

• Restaurant meals

Examples of items for which input tax is deductible (if related to a taxable business use)

• Purchase, lease or hire of a car, van or truck

• Fuel for cars, vans and trucks

• Car maintenance

• Business entertainment and travel (special calculations may apply)

• Conferences (special calculations may apply)

• Advertising (special calculations may apply)

• Hotel accommodation (special calculations may apply)

• Mobile phone expenses

Partial exemption. If a Russian taxable person makes both exempt supplies and taxable supplies, it must account for them separately. Input tax directly related to taxable supplies and the supply of services outside of the Russian Federation is recoverable in full, while input tax directly related to exempt supplies is not recoverable and must be expensed for Russian profit tax pur poses. Input tax that may not be directly attributed to taxable or exempt supplies (such as VAT on business overhead costs) must be apportioned. The statutory method of apportionment is a pro rata calculation, based on the value of taxable supplies (including, for this purpose, the value of services supplied outside the Russian Federation) made compared with the total turnover of the business.

Approval from the tax authorities is not required to use the partial exemption standard method in the Russian Federation. Special calculation methods are not allowed in the Russian Federation.

Capital goods. Capital goods are not defined by the Russian Tax Code for VAT purposes; thus, the Russian tax authorities refer to the definition established for corporate income tax. As such, capital goods are assets that are used as instruments of labor in the production and sale of goods (i.e., the performance of work, the rendering of services) or for the management of an entity and have a historical cost of more than RUB100,000. Input tax charged on the purchase of capital goods can be recovered, provided that the general requirements for VAT recovery are fulfilled. The law does not establish limitations with respect to the amount of input tax related to the capital goods that can be deducted within one reporting quarter, nor obliges to spread the deduc tion over a certain period of time.

In case the capital goods are used in both taxable and exempt supplies, input tax must be appor tioned based on the partial exemption rules outlined above. Application of partial exemption rules in relation to the capital goods is not associated with any specific obligations of a taxable person to monitor or adjust a determined pro rata over time. Similar as with respect to any other types of goods, a previously determined pro rata should be adjusted if there was a change in prices of goods (works, services) supplied within a reporting quarter and taken into account for calculation of the pro rata.

Refunds. If the amount of input tax recoverable in a quarterly period exceeds the amount of out put tax payable in that period, the taxable person is entitled to an input tax credit. The VAT refund application must be sent to the appropriate tax office. The application must be completed in Russian. The refund is made in Russian rubles (RUB) to a bank account held in the Russian Federation.

After a taxable person has submitted a VAT return, the tax authorities check the validity of the amount claimed as refundable in the course of performing an in-house tax audit. In general, refunds are made only after an in-house tax audit is carried out at the location of the tax author ities. The tax authorities may request any of the following documentation for the VAT audit:

• Original VAT invoices

• Documents confirming the tax has been paid or withheld

• Contracts

• Sales and purchase ledgers

• Primary documents supporting amounts reflected in the submitted VAT returns

The Russian VAT law requires the tax authorities to pay a refund no later than five days following the positive decision regarding the VAT refund claim of a taxable person. In practice, however, refunds are often delayed.

If a refund is made with delay, the tax authorities must pay interest accrued at the refinancing rate of the Russian Central Bank for each day of delay, beginning with the 12th day after the completion of the in-house audit of the relevant VAT return. From 1 January 2016, the annual

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refinancing rate equals the annual key rate. At the time of preparing this chapter, the rate is set at 7.5%.

On the basis of a written application of the taxable person, the confirmed amount of VAT can be refunded to the bank account of the taxable person or can be credited towards the other outstand ing federal tax liabilities. Under certain conditions, the reimbursement (offset or refund) of VAT may be granted to taxable persons in advance, that is, before the completion of an in-house tax audit of the returns submitted. If no indebtedness arises from taxes, penalties and/or fines, against which reimbursable VAT may be offset, the amount of VAT may, at the taxable person’s request, be returned in cash to a bank account during the 11–16 days from the moment that the VAT return is submitted to the tax authorities. Alternatively, a taxable person may claim the amount of reimbursable VAT for offset against future tax payments with respect to VAT or other federal taxes.

If the in-house tax audit subsequently results in the tax authorities’ partial or full refusal to reim burse VAT, the relevant amounts of arrears, penalties and interest for using the monetary resourc es (VAT paid back to the taxable person) must be paid to the budget.

The right to use the accelerated procedure of VAT reimbursement is granted to the following two categories of taxable persons:

• Taxable persons that are companies whose gross total amount of VAT, excise duties, profit tax and mineral extraction tax (except for the amount of taxes paid on transfer of goods over the border of the Russian Federation and taxes paid by the taxable person as a tax agent), paid for the three preceding calendar years is no less than RUB2 billion, provided that at least three years have passed from the date of the relevant company’s foundation to the date of submission of the VAT declaration

• Taxable persons that have submitted a suitable bank guarantee to the tax authorities with their VAT returns

If assets, intangible assets and property rights are transferred as a contribution to the charter capital of a company or partnership or as share contributions to the share fund of a cooperative or if these assets are subsequently used in carrying out the exempt operations, the amount of input tax must be repaid or “restored.” The amount of restoration is the VAT previously claimed as a deduction or, with respect to fixed assets and intangible assets, an amount proportional to the net book (balance sheet) value without taking account of any revaluation.

Pre-registration costs. Input tax incurred on pre-registration costs is not recoverable in the Russian Federation.

Bad debts. Output tax accounted for on supplies that do not get paid by the recipient (i.e., bad debts) cannot be recovered in the Russian Federation.

Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in the Russian Federation.

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses in the Russian Federation is not recoverable.

However, if a non-established businesses is registered with the Russian tax authorities as a rep resentative office, VAT incurred on the purchase of goods (including imported goods), works, services and property rights is generally recoverable if the following VAT recoverability criteria are met:

• The purchased goods (works and services) or property rights are to be used in the course of an activity subject to VAT.

• All proper supporting documents (including VAT invoices that contain all required details) are in place.

• The purchased goods (works and services) or property rights are properly reflected in the buyer’s accounting ledgers.

• Customs VAT for imported goods is paid to the Russian customs authorities.

H. Invoicing

VAT invoices. In general, a Russian taxable person must provide a VAT invoice for supplies. Invoices must be issued in Russian, but bilingual invoices may be issued in Russian and another language.

A foreign legal entity providing electronic services is not obliged to issue VAT invoices for the supply of electronic services to either an individual (B2C supply) or legal entity or individual entrepreneur (B2B supply).

Credit notes. Corrective VAT invoices are allowed if there is a change in the value of a transac tion, particularly for price changes or changes in the sales volume. The value may be either increased or decreased.

An increase in the value of a transaction results in the supplier charging additional VAT for the tax period in which the transaction takes place. The supplier issues a corrective VAT invoice indicating (among other details) the upward change as a positive amount. The receipt of the corrective VAT invoice provides the purchaser with grounds to offset the amount of VAT arising from the increase in the value of the transaction in the period in which the corrective VAT invoice is received.

On a decrease in the value of a transaction, the supplier issues a corrective VAT invoice indicat ing (among other details) the downward change as a negative amount. This invoice provides the supplier with grounds to offset the reduction in VAT caused by the decrease in the value of the transaction in the period in which the corrective VAT invoice is issued. The purchaser, in turn, must restore the excess amounts of input tax resulting from a downward change in the value of a transaction.

Electronic invoicing. Electronic invoicing is allowed in the Russian Federation, but not mandatory. It is available for all taxable persons. VAT invoices may be prepared in electronic format by mutual agreement between the parties to a transaction and provided that those parties have com patible technical equipment and resources for the acceptance and processing electronic VAT invoices. Electronic VAT invoices should be signed with a qualified electronic signature and should comply with the form and format established by the Russian tax authorities.

The Russian Ministry of Finance establishes the procedure for the issuance and receipt of VAT invoices in electronic format. The Russian Federal Tax Service separately establishes the formats of VAT invoices, journals of VAT invoices received and issued, and sales and purchase ledgers in electronic format.

Simplified VAT invoices. Simplified VAT invoicing is not allowed in the Russian Federation. As such, full VAT invoices are required.

Self-billing. VAT invoice self-billing is applicable only for transactions where the tax agent mechanism is applied by the Russian entity registered as a taxable person.

Proof of exports. Goods exported from the Russian Federation, as well as some types of works and services related to exports, are subject to a 0% VAT rate in the Russian Federation. To con firm the applicability of the 0% rate, the supplier must collect and provide to the tax authorities a package of supporting documents.

Foreign currency invoices. In practice, the issuance of VAT invoices in the domestic currency, which is the Russian ruble (RUB), is preferable. If a VAT invoice is issued in a foreign currency, all values required for VAT purposes must be converted into rubles for tax purposes, using the rate published by the Russian Central Bank. A supplier determines the tax base using the rate of

the Russian Central Bank as of the date of dispatch of goods (works and services) and/or prop erty rights. On further receipt of payment, the tax base may not be adjusted by the supplier. A buyer recovers the amount of input tax determined using the rate of the Russian Central Bank on the date when all VAT recoverability criteria are met. On making further payment to the supplier, the amount of recovered VAT may not be adjusted by the buyer.

Supplies to nontaxable persons. When goods are sold to private customers the supplier should issue the private customer with a sales receipt instead of a VAT invoice.

Records. The general accounting records should be kept in accordance with the Russian account ing standards. The Russian tax law does not establish any restrictions on the location where the accounting records should be kept (within or outside the country). The only important aspect is to have them available on request from controlling bodies. The taxable person should also keep the sales and purchase ledgers in accordance with the established format. If the taxable person performs operations as an intermediary in its own name, it should keep the logbooks of issued and received VAT invoices.

Record retention period. Tax reporting records must be maintained for at least four years.

Electronic archiving. Primary accounting documents, accounting registers, shall be drawn up in the electronic form and signed by a qualified electronic signature. The paper archiving is allowed exclusively if electronic archiving is impossible or prohibited by the federal laws regulating accounting standards and archiving policies. For instance, it is prohibited to store only in elec tronic format the documents which, due to the company’s policy, were originally drawn up on paper.

I. Returns and payment

Periodic returns. Taxable persons file VAT returns quarterly. VAT returns must be submitted to the tax authorities where the taxable person is registered (specifically each area in the Russian Federation) no later than the 25th of the month following the end of the reporting period, specifically:

• No later than 25th of April

• No later than 25th of July

• No later than 25th of October

• No later than 25th of January

The VAT return must be filed in the prescribed format in electronic form via telecommunications channels through an electronic document interchange operator.

The purchase ledger and sales ledger of the taxable person represent a part of the VAT return. Therefore, the VAT return contains information from each VAT invoice received or submitted during the reporting period.

Periodic payments. The VAT amount per VAT return must be paid equally in the three months after the relevant tax period. For example, the VAT amount payable according to the VAT return for the first quarter must be paid according to the following schedule:

• One-third of the VAT must be paid by 25 April

• One-third of the VAT must be paid by 25 May

• One-third of the VAT must be paid by 25 June

In general, VAT payable under the reverse-charge mechanism is accounted for separately and must be paid by the tax agent at the same time as payment is made to the supplier.

The VAT payment should be transferred to the budget as an ordinary bank transfer in RUB.

A foreign legal entity providing electronic services should pay VAT as reported in a quarterly VAT return not later than the 25th of the month following a reporting quarter (i.e., by 25 April, 25 July, 25 October, 25 January). The foreign supplier should pay VAT to the Russian budget as an ordinary bank transfer by submitting a payment order with the respective details. There is no requirement to open a bank account in Russia for these purposes. The supplier may present a payment order to either a Russian bank or to a non-Russian bank that has correspondent relations with Russian banks participating in the Bank of Russia payment system. VAT payment can be initiated by a foreign entity in any currency, but the payment should reach the Russian budget in Russian rubles.

Electronic filing. Electronic filing is mandatory in the Russian Federation for all taxable persons. Generally, VAT returns must be filed via operators approved for submitting electronic documen tation flows. Purchase and sales ledgers, which are an integral part of a VAT return, must also be filed electronically. However, foreign legal entities that are providers of electronic services may submit simplified VAT returns via online personal accounts.

Payments on account. Payments on account are not required in the Russian Federation.

Special schemes. No special schemes are available in the Russian Federation. However, taxable persons may submit unified (simplified) tax returns (one return for one or more taxes) if the taxable person had no taxable operations in the reporting period and no turnover on its bank account.

Annual returns. Annual returns are not required in the Russian Federation.

Supplementary filings. No supplementary fillings are required in the Russian Federation.

Correcting errors in previous returns. If a taxable person discovers that information has not been disclosed or fully disclosed in a previously submitted VAT return or finds out errors resulted in an understatement, an amended VAT return should be submitted. The process of submitting an amended VAT return is similar to that for the submission of an initial VAT return, except that the taxable person should indicate that the VAT return is amended.

When the mistakes identified by the taxable person do not result in an understatement, the taxable person has the right (but not the obligation) to make the necessary amendments to the VAT return and to submit a revised VAT return.

The amended VAT return must be filed electronically in the prescribed via telecommunications channels through an electronic document interchange operator.

Digital tax administration. There are no transactional reporting requirements in the Russian Federation.

J. Penalties

Penalties for late registration. The Russian tax law provides for several types of fines in the fol lowing amounts for tax registration violations:

• A penalty of RUB10,000 is imposed for a violation by a taxable person of the time limit established in the tax code for the submission of an application for registration with a tax authority on grounds provided for in the tax code.

• The carrying on of activities by an organization or a private entrepreneur without registering with a tax authority on grounds provided for in the tax law results in the imposition of a pen alty equal to 10% of income received during that time as a result of such activities, but not less than RUB40,000.

Penalties for late payment and filings. The Russian tax law provides for the following fines with respect to the filing of VAT returns:

• Late filing: penalty ranging from 5% to 30% of the underpaid tax, depending on the duration of the delay but no less than RUB1,000

• Nonpayment or partial payment of the tax: penalty of 20% of the underpaid tax

• Willful nonpayment or partial payment of the tax: penalty of 40% of the underpaid tax

Penalties for errors. The Russian tax law provides for the following fines with respect to errors within the VAT return:

• Severe violation of revenue and expenses accounting regulations and objects of taxation in one tax period: penalty of RUB10,000

• Severe violation of accounting regulations and objects of taxation in more than one tax period: penalty of RUB30,000

• Severe violation of accounting regulations and objects of taxation leading to the understatement of the tax base: penalty of 20% of the underpaid tax, but not less than RUB40,000

A severe violation of revenue and expenses accounting regulations and objects of taxation means the absence of primary documents or VAT invoices, books of account or tax ledgers or the systematic (two or more times within a calendar year) late or incorrect recording in accounting records, in tax ledgers and in reports of the taxable person’s economic operations, monetary resources, tangible assets, intangible assets and financial investments.

Failure to notify the tax authorities of changes in a taxable person’s registration details, including the timing, triggers the application of fines on the taxable person.

Penalties for fraud. See the subsection below Personal liability for company officers for the details of penalties for fraud in the Russian Federation.

Personal liability for company officers. Administrative and criminal charges may be imposed on a company’s officials for “willful or negligent conduct of business that results in the defrauding of the state.”

The following administrative fines may be imposed on the taxable person’s officers:

• RUB500 to RUB1,000 – if the taxable person fails to timely submit an application for registration with a tax authority

• RUB2,000 to RUB3,000 – if the taxable person carries out activities without registration

• RUB300 to RUB500 – if the taxable person fails to submit VAT return in due time

• RUB5,000 to RUB10,000 – if the taxable person severely violates bookkeeping and financial accounting requirements

• RUB10,000 to RUB20,000 or disqualification to hold certain positions for one to two years – if the taxable person repeatedly violates bookkeeping and financial accounting requirements

The following criminal liability might be imposed in exceptional cases:

• A fine in the amount from RUB100,000 to RUB300,000 or in the amount of the wage or other income of the convicted person for a period of one or two years, or compulsory labor for a term of up to two years with deprivation of the right to occupy certain positions or be engaged in certain activities for up to three years or without it, or arrest for up to six months, or imprison ment for up to two years with the deprivation of the right to occupy certain positions or be engaged in certain activities for up to three years – if the taxable person evaded to pay taxes by failure to submit a VAT return or included knowingly false information in it in the amount more than RUB15 million for three years.

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A fine in the amount from RUB200,000 to RUB500,000 or in the amount of the wage or other income of the convicted person for a period of one or three years, or compulsory labor for a term of up to five years with deprivation of the right to occupy certain positions or be engaged in certain activities for up to three years or without it, or imprisonment for up to six years with the deprivation of the right to occupy certain positions or be engaged in certain activities for up to three years – if the taxable person evaded to pay taxes by failure to submit VAT return or included knowingly false information in it in the amount more than RUB45 million for three years.

Statute of limitations. The statute of limitations in the Russian Federation is three years. Within the framework of an on-site/in-desk tax audit, tax authorities can review VAT returns (identify errors/impose penalties) for the period not exceeding three calendar years preceding the year in which the decision to conduct the audit was made by the tax office.

The taxable person can, however, voluntarily correct errors in previous VAT returns in any time frame (without time limitation) by submitting a revised tax return. At the same time, submission of the revised VAT return before the tax payment deadline will not result in penalties or interest fees being imposed on the taxpayer. Otherwise, the tax authorities will charge penalties and inter est fees.