Changes in the taxation of electronic services

Changes in the taxation of electronic services

As of January 1, 2019, as a general rule, foreign organizations providing electronic services[1] on the territory of Russia were obliged to calculate and pay VAT independently.

On March 30, 2022, the Russian Federal Tax Service issued Letter No. SD-4-3/3807@ (hereinafter, the "Letter"). By the Letter, the Federal Tax Service reported that: (1) the sanctions imposed on Russia create difficulties for foreign organizations providing electronic services to transfer funds from foreign bank accounts in order to pay VAT; (2) Russian organizations and individual entrepreneurs who purchase electronic services from foreign organizations are recommended to calculate, withhold and pay VAT to the budget independently.

On July 5, 2022 the State Duma passed Bill No. 136059-8 (hereinafter referred to as the "Bill") in the third reading. As regards the procedure for calculating and paying VAT on electronic services rendered by foreign organizations, the Bill provides, inter alia, for the following:

  • With respect to electronic services rendered to individuals. Foreign organizations, as a general rule, retain the obligation to calculate and pay VAT to the budget;
  • With regard to electronic services rendered to Russian companies and individual entrepreneurs. As a general rule, the obligation to calculate and pay VAT to the budget is imposed on such Russian companies and individual entrepreneurs that will act as tax agents.

Besides, the Draft law proposes to abrogate point 2.1 article 171 of the RF Tax Code, which now allows taxpayers to claim VAT deductions at the purchase of electronic services from a foreign organization registered with the Russian tax authorities.

The amendments proposed by the Bill should come into force one month after the date of adoption of the Bill[1] but not earlier than the 1st day of the next tax period.

As of July 11, the Bill was under consideration in the Federation Council.

What does this mean for business?

The Bill actually brings back the legal regulation of the order of taxation of electronic services, which was in force until 2019.

We believe that if the Draft Law is adopted, businesses should consider making the necessary changes to the document flow procedure and inform their foreign counterparties of the innovations (with regard to the taxation of electronic services). 

The Tax Compliance team will continue to monitor the Bill and its impact on businesses.


[1] Services in electronic form specified in paragraph 1 of Article 174.2 of the Tax Code

[2] Official publication