Starting from January 1, 2019, foreign companies that do not have stand-alone representative offices in Russia are obliged to pay VAT imposed on electronic services rendered to Russian consumers via the Internet to the Russian budget. Prior to January 1, 2019, Russian companies acted as withholding agents who were obliged to pay VAT; for this purpose the companies withheld VAT, transferred it to the budget and paid the cleared amount (less VAT) to suppliers. At present, the foreign companies are responsible for payment of VAT irrespective of a buyer status.

Only services rendered in Russia as defined in article 148 of the Tax Code of the Russian Federation are subject to VAT. The most recent English version of the relevant provisions of the Russian Tax Code related to electronic services can be found here. In general, Russia is deemed to be the place of supply of electronic services, if:
- a service receiver is a legal entity registered or located in Russia;
- a service receiver is an individual residing in Russia who maintains an account in a Russian bank, has a network address registered in Russia or a telephone number with an international code of Russia.

Article 174.2 of the Tax Code contains the complete list of electronic services. In particular, sales via online marketplaces (including sale of media-resident software) as well as communication with a service receiver by e-mail are not included in this list. In such cases, a service receiver being a legal entity is obliged to pay VAT.

In the letter dated April 24, 2019 No. СД-4-3/7937@, the Federal Tax Service provided an explanation that if VAT imposed on electronic services was paid not by a foreign company, but by a Russian buyer, the payment may be accepted for a tax deduction. This will not create any negative consequences neither for the buyer, nor for the seller.

The tax rate for foreign companies amounts to 16.67% of the value of electronic services including VAT. For Russian companies, the tax rate amounts to 20% of the price of electronic service exclusive of VAT.

In order to fulfill the obligation of VAT payment a foreign company is obliged:

1. To get registered with a tax authority.

This may be done through the service “VAT Office for Online Service Providers” on the website of the Federal Tax Service of Russia. The service is available in English. After filling in and submitting an application, the foreign company get INN (Taxpayer Identification Number) and KPP (Tax Registration Reason Code) remotely, and it will be provided with details of access to the online personal account. The online personal account will allow to file VAT returns and to communicate with the tax authorities. 2294 foreign companies were registered in the system as of March 17, 2020.

Foreign companies are obliged to register with the tax authorities within 30 calendar days from the date of beginning of service rendering to Russian consumers.

The penalty for a violation of the term of registration amounts to 10,000 rubles.

2. To file a special VAT return and to make a tax payment to the Russian budget.

The declaration is to be submitted at the latest on the 25th day of a month following the end of the reported quarter. You can pay tax using your account in a bank located abroad. It is not mandatory to open an account in a Russian bank.