Russian VAT – Location, Location, Location!
Partner, Alinga Consulting Group
VAT is mainly (but not only) levied on goods, labor, and services realized or rendered "on the territory of the Russian Federation," according to paragraph one of Article 146 of Russia’s Tax Code. Accordingly, if goods, labor, or services are not rendered or realized within Russia, they are not subject to Russia's VAT, which amounts to 18% of the purchase price, payable by the purchaser.
However, in today's international and often electronic economy, how does one define the location in which a service was rendered? Article 148 of the Tax Code explains how various types of services should be treated. The table below explains.
Type of Service
These services are considered rendered in Russia if…
|Services and labor connected with real estate, including construction and services connected with renting. Exclusions include property intended for use in space, aircraft and water-going vessels.
||the real estate is located in Russia. |
|Service and labor connected with movable property including its installation, assembly, repair, or maintenance. This includes labor and services connected with moveable property intended for use in space, aircraft or water-going vessels.
||the property is located in Russia.|
|Services falling within the spheres of:
- physical (sport) training;
- or sport.
|the service was actually performed in Russia. |
| Services concerning:
- the transfer or granting of patents, licenses, trade marks, or similar rights;
- the creation of software and information products for electronic products, or their adaptation or updating;
- information processing;
- staff leasing (if the leased staff work in Russia);
- leasing movable property (with the exception of ground vehicles);
- agency services in locating and rendering any of the services listed on this table.
|the purchaser of the service conducts business in Russia.|
- transportation services;
- services directly connected with domestic transport (but not international transport)
- rendering chartered transport services (via aircraft or water-going vessels).
|a point of departure and/or the destination of the transport is in Russia AND the seller of service is a Russian organization or individual entrepreneur |
| - services or labor directly connected with the transport of goods affected by international customs regimes.
||the seller of the service is an organization or individual entrepreneur that conducts business in Russia. |
If a service does not meet the crucial "ifs" listed in the table above, the service is considered rendered outside Russia and Russian VAT cannot be assessed on any proceeds earned from its rendering.
To give a few specific examples: according to these rules, legal services rendered by a Russian company to a non-Russian entity should not have VAT added to their cost; warehouse space located outside Russia and rented by a Russian company is also not VAT-taxable; a Russian company who leases security guards to a foreign company to protect a construction project being built outside Russia also need not add VAT to the costs of their staff leasing.
It is important to notice the distinction made by the law between "a Russian organization" and "an organization which conducts business in Russia." Obviously the second category includes foreign companies who maintain representative offices in Russia. Thus, cargo services provided in Russia by a foreign company will be considered rendered outside the Russian Federation and, thus, are not applicable to VAT. Services directly connected with transportation provided by a foreign company will also be VAT exempt.
Tour operators should also pay close attention to the fact that tour services are only taxable if they are rendered within Russia. Thus, tourism firms need not pay VAT on the cost of transport, food, or excursions included in tours sold in Russia, but which are realized outside of Russia and have documentation confirming that they were realized outside of Russia. Services directly connected with procuring goods and services such as transpiration tickets, visa assistance, and similar services, however, are realized within Russia and any fees for them, such as agent's fees, are subject to VAT.
If you have a specific situation you would like to ask about, please don't hesitate to contact us.
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