How To Apply VAT On Electronic Services Rendered By Foreign Companies During The Tax Transition Period From 2018-2019

13.11.18

VAT increases from 18 to 20 percent from January 1, 2019 (see the Law of 03.03.2018 No. 303-FZ) affects VAT for electronic services rendered by foreign companies. The specifics of its calculation were disclosed by the Federal Tax Service in a letter dated October 23, 2018 No. SD-4-3/20667.

Rules that Changed

VAT is applied on electronic services from foreign firms in a special regime, which is prescribed in Article 174.2 of the Tax Code of the Russian Federation. It is valid from 2017.

According to Paragraph 3 of Article 174.2 of the Tax Code of the Russian Federation (in the new version of the Law of 27.11.2017 No. 335-FZ), for foreign companies providing services in electronic form (the list is in Paragraph 1 of Article 174.2, later in the article we will discuss these), the place of the realization of the sale is now considered to be Russia.

Russian entities will calculate and pay the tax, if the obligation to pay it is not assigned to a tax agent. In this, Paragraph 9 of Art. 174.2 of the Tax Code of the Russian Federation loses its force.

In this case, for electronic services, a tax agent for VAT is a foreign intermediary organization that conducts business activities with participation in settlements directly with customers of services on the basis of contracts of commission, concession, agency, or other similar contracts with foreign companies.

These rules come into force on January 1, 2019.

Thus, for the purpose of VAT from electronic services in 2019 when they are provided by foreign organizations from 01/01/2019, the obligation to calculate and pay VAT to the Russian state lies with the foreign company, regardless of whether it is an individual or legal entity doing the buying.

Calculations

In accordance with Paragraph 2 of Article 174.2 of the Tax Code of the Russian Federation, when providing foreign firms with services in electronic form (except when providing services through their Russian branch), the tax base is defined as the cost of services, taking into account the amount of VAT at actual sales prices. At the same time, the moment of determining the tax base is the last day of the tax period in which payment or partial payment for such services arrived (Cause 4 of Article 174.2 of the Tax Code of the Russian Federation).

The amount of VAT on electronic services rendered by foreign organizations will be calculated independently and shall be declared to the Russian tax authorities in accordance with Paragraph 4.6 of Article 83 of the Tax Code.

Tax is set as the percentage of the tax base corresponding to the estimated rate of 16.67% (Clause 5 of article 174.2 of the Tax Code of the Russian Federation in the new edition of the Law of 03.08.2018 No. 303-FZ).

What To Do

Situation	Solution
Services in electronic form are provided before 01/01/2019	Foreign firms calculate VAT at an estimated rate of 15.25%
Electronic services are rendered after 01/01/2019	Pay at a rate of 16.67%