Russia’s State Duma passed a law this week which permits Russian exporters and Russian subsidiaries of foreign companies that provide services to foreign clients to deduct the full amount of value added tax (VAT) for these services, Realnoe Vremya reports.
“The zero VAT rate for the export of works and services will take effect from July 1, 2019. Relevant changes were made to Articles 170 and 171 of the Tax Code of the Russian Federation,” said an announcement by the Russian Export Center (REC). The adopted amendments provide, in particular, the right to deduct VAT in respect of works and services that are sold outside of Russia.
For many years, only the export of goods has been exempted from VAT (the tax rate is 0%). In order to confirm whether a party exports goods and has the right to apply the preferential 0% tax rate, it must submit the relevant supporting documents to the tax authority within 180 calendar days from the date on which the customs authority stamps “Cleared” on its customs declaration.
According to International Law Office (ILO), the new law will increase competition in the outbound services market, as exporters of services will be eligible to the same tax deduction that applies to the export of goods. The prompt drafting and adoption of this bill is due to the development of the digital economy.
The legislation will have positive economic effects for exporters of services not only because of the 0% VAT rate, but also because the total amount of VAT paid to suppliers when acquiring or producing such exported services may be deductible, ILO writes. At present, many exporters find themselves in situations where the amount of VAT to be deducted exceeds the amount of tax payable for domestic transactions. In such cases, exporters will now be entitled to a VAT refund (in terms of such excess) from the budget.
Exporters of services were previously deprived of using such a mechanism, as VAT on the export of services was paid depending on whether the services were sold in Russia or a foreign state.