As you know, starting from October 1, 2022, new VAT payment rules began to apply when it comes to buying services from companies from abroad conducted via the Internet. Let us mention that there are cases when a foreign company provides electronic services through a separate division in Russia. In this article we will tell you how to pay VAT on electronic services of companies abroad with updated rules.
It should be noted that before updating these rules regarding the payment of VAT on services provided via the Internet, foreign companies had to pay VAT. Such changes were necessary because economic sanctions were imposed on Russia, which is why some payment systems, thanks to which funds were transferred between Russian and foreign organizations, stopped working in Russia. Because of this, suppliers from abroad lose the opportunity to legally and within certain time limits to pay VAT for electronic services.
The list of electronic services, when purchasing which Russian companies and sole proprietors must pay VAT themselves, is fixed in clause 1 of Article 174.2 of the Tax Code:
• granting rights to use PC programs, including computer games, and databases, including through the provision of remote access to them;
• advertising services on the Internet;
• placement of offers for the purchase of goods, works, services;
• providing an opportunity to establish contacts and conclude transactions between sellers and customers on the Internet;
• storing and processing information on the Internet;
• providing real-time opportunities to post information in the information system;
• provision of domain names, hosting services;
• administration of information systems and websites;
• granting rights to electronic books and other electronic publications, informational, educational materials, graphic images, as well as musical and audiovisual works;
• search for and provide the customer with information about potential customers;
• access to search engines;
• maintaining statistics on websites.
A very important point is that the implementation of these services should be carried out on the territory of the Russian Federation. According to the Tax Code of the Russian Federation, electronic services are considered recognized in the Russian Federation when their buyer operates in Russia. I.e., any Russian organization will become a VAT agent if it purchases electronic services from a company from abroad.
It is important to take into account that there are some electronic services on which this rule is not established:
• consulting services by e-mail;
• provision of Internet access services (provider services);
• transfer of rights to use programs on tangible media;
• when ordering goods (works or services) via the Internet, when delivery is not carried out via the Internet.
Who can not pay VAT on electronic services of foreign companies
Tax agents for VAT when buying electronic services from a foreign supplier do not become:
• companies and sole proprietors in transactions through separate divisions of sellers in the Russian Federation – in this case, VAT is calculated and paid by divisions of these organizations;
• companies and sole proprietors in transactions through intermediaries, which are separate divisions of foreign sellers located in Russia – in such situations, intermediaries perform the functions of a VAT tax agent;
• companies and sole proprietors in transactions through Russian intermediaries – in such cases, the functions of a VAT tax agent are assigned to intermediaries.
Among other things, the updated rules will not apply to those purchases that were made before 01.11.2022. And even if the buyer has made an advance payment to a foreign supplier before this date for electronic services, he will not be obliged to pay VAT for it as well.
How to determine the tax base for VAT
The VAT tax base for each purchase of electronic services from foreign suppliers is determined as the amount of income of a foreign company from the sale of such a service, including tax.
If the cost of the service is determined in a foreign currency, it will be necessary to recalculate the amount in rubles at the exchange rate of the Central Bank on the date of transfer of funds to the supplier.
The tax is determined at the estimated rate of 20/120 (Clause 4 of Article 164 of the Tax Code).
How to pay tax to the budget
The tax is paid simultaneously with the transfer of the payment to a foreign organization from which a Russian company buys electronic services. When there is no order to pay VAT, the bank that serves the Russian organization will not accept its order to transfer money to the supplier.
Starting from 2023, a single tax payment will be introduced. This means that Russian companies purchasing electronic services from foreign organizations will pay VAT in equal shares within three months following the expired quarter no later than the 28th of each month. That is, he will need to withhold tax when paying for foreign electronic services, but not transfer it to the budget immediately.
How to declare the amount of VAT paid deductible
When an electronic service has been provided by a supplier from abroad, a Russian company that has become a tax agent has the opportunity to declare the amount to be deducted. In order to do this, it is necessary to have an invoice that confirms the payment of tax to the budget at the same time, an electronic service must be purchased for the implementation of VAT-subject activities. The tax agent registers his invoice generated when paying for an electronic service in the purchase book with the transaction type code 06.
How to reflect the purchase of electronic services from a foreign supplier in the VAT declaration
As you know, tax agents must submit a VAT declaration, even if they are not payers of this tax.
They must provide the following information:
• section 2 indicates the amount that the tax agent transferred to the budget when purchasing electronic services from foreign suppliers.
• section 9 reflects information about transactions for which VAT was accrued in the reporting quarter. In line 010 “Operation type code” of section 9, the code “06” is indicated.
• in section 3, the amount of tax to be deducted is reflected on line 180.
• in section 8, the tax agent’s invoice is indicated with the transaction type code “06” (page 010).
Otherwise, the tax return is filled out in the general order.