04.07.08

Application of VAT for design and development work performed by a Russian company for foreign clients, including residents of Belarus, is explained by the Ministry of Finance (the MinFin) in letter # 03-07-08/145 from June 6, 2008.

Based on Article 148 of the Tax Code (TC) and the Protocol between the Government of the RF and the Government of Belarus on Indirect Taxes from March 23, 2007, MinFin explained that the place of supply of these services is established by the location of company purchasing the services. Thus, design and development services conducted by Russian organization for foreign entities located in a foreign country are not subject to VAT on the territory of the RF.

Also, according to Article 170 paragraph 2 of the TC, VAT amounts paid on goods and services purchased for these activities are not tax-deductible and must be included in the final price. If the organization also performed other activities subject to VAT, and expenses for work abroad amounts to less then 5 percent, then all VAT amounts may be calculated together.

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