Russia can be the next in line to join the countries that impose VAT on the B2C supply of electronic services by non-established service provider. A draft legislation that would require foreign companies to start charging VAT on internet / digital services provided to individuals is currently being considered by the Russian State Duma.

According to the draft law, digital services provided by foreign companies to Russian individuals should be regarded as subject to Russian VAT even if currently such companies are not tax registered in Russia.

The list of services to be taxed in accordance with the new rules is established by the draft law and it is quite extensive. In particular, the list includes provision of rights for the use of software and sales of electronic information (i.e. music, e-books and other electronic publications, graphics, audiovisual works, games, films).

Foreign companies providing digital services / sell content to individuals in Russia should register with the Russian tax authorities and fulfill their VAT obligations under a special procedure.

It is proposed that the new rules established by the draft law should enter into force starting from 2017.

The draft law is at a very early stage in the legislative process and may be significantly altered until it is passed. You should nevertheless keep monitoring the development so that you are ready for a compliant operations when the legislation becomes effective. This includes completed registration, ERP system configuration to reflect on the changes, updating your general terms & conditions for the Russian market and review your pricing strategy, just to name a few important factors.

If you need further information please do not hesitate to contact me or my colleague from PwC Russia Vladimir Konstantinov on +7 (495) 967 6236 or vladimir.konstantivoc@ru.pwc.com.

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