Value Added Tax (VAT) is one of the main taxes that most organizations in Russia have to pay. A distinctive feature of this tax is the existence of several tariffs and periodic changes made by the regulatory authorities to certain lists of goods or services that are subject to VAT. Another change came into force this year as well.  

The VAT rate depends on the goods sold, the type of products manufactured, work performed or services rendered by an enterprise. Therefore there are several direct VAT rates, i.e. 20%, 10% or 0%. In addition, there are also estimated rates. Let's understand them.

Direct VAT rates

The normal, "basic" VAT rate is, as before, 20%. It applies "by default" in those cases that do not fall under the application of reduced rates. Chapter 21 of the Russian Tax Code stipulates that a 20% VAT rate applies when

- The sale of property to a counterparty in Russia;

- The performance of taxable work in Russia;

- The carrying out of construction and installation work within the country for their own needs;

- The importation of property into the country, in respect of which there is no reduced rate of VAT in 2022.

Thus, the application of the 20% rate is required for most types of activities.

However, application of the 10% VAT rate is also possible. It will be valid if it concerns the sale and import of property included in the list of the Government of Russia. It is not too broad. It includes:

- Some food products and products for children;

- Periodicals and printed publications;

- Medical equipment and medical goods.

Specific product categories are listed in paragraph 2 of Article 164 of the Tax Code. In addition, the 10 percent VAT rate applies to domestic passenger air transportation (including luggage) except for flights to the Crimea, Sevastopol, Kaliningrad Oblast and the Far Eastern Federal District.  

There is also a zero rate of VAT. It may be applied to the operations listed in clause 1 of Article 164 of the TC RF. These are the export of the property from the territory of Russia in the customs regime of export, free customs zone and some cases of re-export. Apart from that the zero rate of VAT is valid for the services of international cargo transportation, international passenger transportation (including luggage) and international freight forwarding services.  

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Calculated VAT rates

In addition to the direct VAT rates, there are calculation rates. They correspond to the direct rates of 10% and 20%, but are calculated differently, by the ratio of the percentage VAT rate to the tax base, taken as 100 and increased by the percentage rate. The procedure of such calculation is specified in Clause 4 of Article 164 of the Tax Code. The calculation rate is needed more often in cases where the supplier accrues tax and the buyer needs to claim a deduction. For example, company X makes a 60% prepayment to company Y for goods subject to 10% VAT. In this case, company Y uses the calculation rate and determines the amount of VAT using the formula (Prepayment amount) x 60% x 10/110. The same amount will be deducted by company X. 

There are also other cases where the estimated rate should be used. The 10/110 formula should be used if:

- Advance or prepayment for the shipment of goods included in the list of goods subject to the VAT rate of 10%;

- Payment of interest on a commodity credit for the same goods;

- Shipment of goods on this list, if they are recorded at cost including "input" tax;

- Withholding tax by an agent on purchases of property falling under the 10 percent VAT rate, if such purchases are made from foreign suppliers who do not have Russian tax residency.

At the rate of 20/120 the calculation rate is applied in case of advance payment or prepayment for goods, works or services falling under the 20% VAT category.

Changes in VAT in 2022

VAT rates for certain categories and even product names are a subject of regulation that the government uses quite extensively. Categories of goods, works and services subject to exemption through VAT instruments are formalized as amendments to the Russian Tax Code. Let's list the most notable changes.

From January 1, 2022, catering companies whose revenues over the last year did not exceed 2 billion rubles, and the total share of catering in their revenues is not less than 70% are exempt from VAT. This innovation applies to any taxpayers, both LLCs and individual entrepreneurs. However, an important exception should be taken into account: income received from the sale of products by the culinary departments of companies engaged in procurement or retail sales is not exempt from VAT. By the way, this exemption can be applied immediately to those businesses and individual entrepreneurs who are established in 2022. This exemption is specified in Clause 2 of Article 2 of Federal Law 308-FZ as of July 2, 2021.

Another innovation concerns the VAT calculation procedure when selling certain kinds of electronics and home appliances purchased from individuals who do not have the status of individual entrepreneurs. Now VAT must be calculated on the difference between the purchase price and the sale price. Previously, this procedure was only applicable to the resale of cars. Now it applies to household vacuum cleaners, washing machines, refrigerators and freezers, cell phones and some computers. The full list is given in the Government Decree № 1544 of September 13 of last year.

Finally, there have been changes in the taxation of fishermen. The sale or transfer for own needs of breeding fish, their embryos and fry are exempted from VAT. In addition, for trout the VAT rate of 10% was established instead of the previous 20%. To confirm their rights the interested companies can refer to the same 308-FZ.

The new form of VAT declaration

There is another important innovation related to VAT, which is due to come into force in 2022. It concerns the VAT return form. Changes in it are described in the draft order of the Federal Tax Service of Russia, the new form will be applicable starting from the tax return of value added tax for the 1st quarter of 2022.

The draft order of the Federal Tax Service provides for only two changes to the VAT declaration form. Firstly, it is planned to change section 1 "The amount of tax payable to the budget (refund from the budget), according to the taxpayer. Secondly, it is planned to introduce new operation codes, changes to the electronic format of the declaration and formats for presenting information from the purchase book, the sales book and the journal of the issued invoices.

The change in the form is connected with the innovations in VAT, which we listed above. The new form should take into account the exemption from VAT on certain operations. In addition, it provides for the reflection of cases where the obligation of a tax agent arises in the acquisition of goods and services from foreign persons in the territory of Russia.   

At first glance, the changes in the value-added tax that came into force on January 1, 2022 are by no means global in nature. Indeed, only catering companies were exempted from VAT, while companies working in the fishing industry and those trading in second-hand electronics received exemptions.

But innovations related to possible changes to the VAT return form can affect almost any company. And this circumstance requires special attention from enterprises: possible errors may lead to penalties from the tax authorities. This is why accountants and financial managers should take a second look at the current legislation.