Situation: A Russian organization provides equipment for rent to a non-resident, in particular a Kazakh company that has no representation in the territory of the Russian Federation. In addition to this type of service, the Russian company also sells goods (works, services) within the territory of the Russian Federation (VAT rate 18% and 10%), and also exports complex goods (equipment) (VAT rate 0%)).
Is the transaction for leasing equipment subject to VAT? Does it require separate VAT accounting?
Answer on VAT Liability:
Let's do everything in order. The exported services are provided to a foreign organization. When providing services, the tax consequences of VAT depend on the territory of which state (the territory of the Russian Federation or the territory of a foreign state) is recognized as the place of sale of services in accordance with. When providing services to a foreign company, VAT is charged only if the place of provision is Russia (Art. 148 of the Tax Code of the Russian Federation.)
At the same time, for rental services involving movable property, with the exception of land vehicles, a special rule is provided. Namely, the place of sale for such services is determined by the location of the activities of the purchaser.
In this case, the place of activity of the purchaser is within the territory of the Russian Federation if the purchaser has an actual presence in Russia on the basis of state registration. In its absence, the following are considered: the place specified in the constituent documents of the organization, the place of management of the organization, its permanent executive body, the location of the permanent establishment, if the services are provided through this permanent establishment.
Based on the conditions of the issue under consideration, the Russian organization leases the equipment to a foreign company that does not have a permanent representative office within the territory of the Russian Federation. In other words, the purchaser is a foreign organization, and therefore the territory of the Russian Federation is not recognized as the place of sale for the provision of rental services for movable property (equipment).
Thus, the place of sale for the equipment rental services under consideration is recognized as the territory of a foreign state (Kazakhstan). Consequently, the Russian owner does not calculate VAT, since this operation is non-taxable (Article 148 of the Tax Code of the Russian Federation).
It should be noted that in this case the Russian organization does not have the right to deduct the “input” VAT on goods (works, services) that were used to render services to the resident of Kazakhstan, since the place of sale for these services is not the territory of the Russian Federation. The Russian organization should take into account the “input” VAT in the cost of these goods (works, services) (Clause 2, Clause 2, Article. 170 of the Tax Code of the RF).
Answer on Separate Accounting:
In the issue under consideration, the organization simultaneously provides equipment rental services to a foreigner and sells goods (works, services) in the Russian Federation (VAT rate of 18% and 10%), as well as exports complex goods (equipment) (rate 0%)).
In this regard, it should be noted that separate accounting may be needed if the company calculates VAT at 18 or 10% and at the same time it has at least one of the following operations:
- operations not subject to (exempt from) VAT;
- operations for which UTII is paid;
- sale of goods (works, services), the place of sale for which is not recognized as the territory of the Russian Federation;
- operations that are taxed at the rate of 0% (except for the export of goods, recorded after 01.07.2016 and not classified as raw materials).
Having at least one of the above operations, in the presence of sales liable to VAT at 18 or 10%, the Organization is obliged to keep separate records of the "input" VAT.
In the absence of separate accounting, the company will not be able to deduct input VAT on goods, works and services that are used simultaneously:
- for taxable and non-taxable transactions;
- for transactions that are taxed at the rate of 0% (raw), and transactions that are taxed at the rate of 18% or 10%.
Considering the above, as well as the condition of the situation, it is obvious that the Russian company in question has a duty to maintain separate accounting, because it performs VAT-taxable operations at rates of 10% and 18% and, along with this, the place of realization of which is not recognized as the territory of the Russian Federation (provision of equipment rental services to non-residents).
Translated by Alinga Consulting Group.
About Alinga Consulting Group
Audit and Taxation Legal Accounting and Payroll
Questions? Ask Alinga's Experts!