Value-added tax (VAT)
VAT is a federal tax in Russia, which is payable to the federal budget.
There is no separate VAT registration in Russia (with the exception of electronic services). The established general tax registration requirements are applicable to all taxes, including VAT.
Taxpayers follow a ‘classical’ input-output VAT system, whereby a VAT payer generally accounts for VAT on a full sales price of the transaction and is entitled to recover input VAT incurred on inventory costs and other related business expenses. Although not originally based on the European Union (EU) model, the Russian VAT system has, nonetheless, converged more with it. Currently, however, it still differs from the EU VAT system in various ways.
VAT usually applies to the value of goods, work, services, or property rights supplied in Russia. The standard VAT rate is 18% in Russia (with a lower rate of 10% applicable to certain basic foodstuffs, children's clothing, medicines and medical products, printed publications, etc.). The same VAT rates (as for domestic supplies) apply to imports of goods into Russia.
Exports of goods, international transportation and other services related to the export of goods from Russia, international passenger transportation, and certain other supplies are zero-rated with the right of input VAT recovery. The application of the 0% VAT rate and recovery of relevant input VAT amounts are confirmed by submitting a number of documents to the tax authorities within certain time limits. Recovery of input VAT related to the export of goods (except for exports of raw materials) is performed according to general recovery rules (i.e. prior to submission of confirmation documents to the tax authorities). Special rules are in place for the documentary confirmation of the right to tax export supplies to Customs Union member countries at the 0% VAT rate. Since 1 January 2018, it is possible to waive the application of the 0% VAT rate in respect of export of goods, international transportation, and other services related to the export of goods from Russia and apply the 18% VAT rate.
The list of VAT-exempt goods and services includes basic banking and insurance services, services provided by financial companies (depositaries, brokers, and some others), educational services provided by certified establishments, sales of certain essential medical equipment, passenger transportation, and certain other socially important services. Most accredited offices of FLEs (as well as their accredited employees) may be exempt from VAT on property rental payments. The provision of VAT-exempt supplies does not entail the right to recovery of attributable input VAT. Instead, costs associated with non-recoverable input VAT are, in most cases, deductible for CIT purposes.
A list of services rendered through the Internet or other similar electronic networks by foreign suppliers to Russian individuals are subject to Russian VAT. From 1 January 2019, new changes will be introduced, and these changes will require foreign entities to register for VAT purposes and pay taxes if they provide electronic services to legal entities and individual entrepreneurs. Depending on the particular type of service, either the 18% VAT rate or a VAT exemption may apply. If a foreign supplier is directly involved in settlements for electronic services provided, it would be required to register for tax purposes in Russia and fulfil its Russian VAT obligations (including payment of Russian VAT and filing VAT returns with the tax authorities).
The Russian VAT law provides rules for determining where services are supplied in terms of VAT. These rules divide all services into different categories in order to determine where they are deemed to have been supplied for VAT purposes. For example, certain services are deemed to have been supplied where they are performed, whereas some are deemed to have been supplied where the ‘buyer’ of the services carries out its activity, some where the relevant movable or immovable property is located, and still others where the ‘seller’ has its place of activity, etc.
Under the reverse-charge mechanism, a Russian buyer must account for VAT on any payment it makes to a non-tax registered foreign company if the payment is connected to the supply of goods or services considered to have been supplied in Russia, based on the VAT place of supply rules, and that do not fall under any VAT exemptions based on domestic VAT law. In such circumstances under the law, the Russian buyer shall act as a tax agent for Russian VAT purposes by withholding Russian VAT at the rate of 18/118 from payments to the foreign supplier and remit such VAT withheld to the Russian budget. The VAT withheld may be recovered by Russian payers in accordance with the standard input VAT recovery rules as provided by law.
Input VAT recovery
Taxpayers are usually eligible to recover input VAT associated with the purchase of goods, work, services, or property rights, provided that they adhere to the set of rules established by VAT legislation. Input VAT can potentially be recovered by the taxpayer in the following cases:
- VAT related to goods, services, or work acquired for the purpose of conducting VATable transactions.
- Input VAT related to advance payments remitted to Russian suppliers of goods (work, services), provided that such acquired goods (work, services) are for use in VATable activities. Please note that taxpayers are entitled (rather than obligated) to apply this rule, and they may choose whether or not to exercise this right.
Effective 1 January 2018, a tax-free system is established in Russia. Foreign individuals are entitled to refund VAT paid upon retail purchase of goods. The refund is available if the amount of purchase is higher than RUB 10,000 and the location where the goods were purchased is included in the special list established by the government.
VAT compliance requirements
Each taxpayer performing VATable supplies of goods, work, services, or property rights must issue VAT invoices and provide them to customers. A taxpayer supplying VATable goods, work, or services to a customer that is not a VAT payer may opt not to issue a VAT invoice if agreed in writing with the customer. VAT invoices must be issued within five days after the supply has occurred. The VAT invoice is a standard form that is established by the government. Compliance with invoicing requirements is crucial for the buyer's ability to recover input VAT.
Incoming and outgoing VAT invoices should usually be registered by taxpayers in special purchases and sales VAT ledgers.
VAT returns must be submitted electronically to the tax authorities on a quarterly basis. VAT must be paid after the end of each quarter in three instalments, no later than the 25th day of each of the three consecutive months following the quarter, except for remittal of VAT withheld by Russian buyers under the reverse-charge mechanism, which is to be remitted on the date of the external payment.
Import VAT is payable to customs upon importation of goods. The tax base for import VAT is generally the customs value of the imported goods, including excise duties. Either the 18% or 10% VAT rate may apply upon import of goods in Russia, depending on the specifics of the goods. Import VAT may generally be claimed for recovery by the importer, provided that the established requirements for such recovery are met.
A limited scope of goods is eligible for exemption from import VAT. The list of such goods includes, for example, certain medical products and goods designated for diplomatic corps. Relief from import VAT is available on certain technological equipment (including their components and spare parts), analogues of which are not produced in Russia. The list of such equipment has been established by the Russian government.
Goods imported into the Russian Federation are subject to customs duties. The rate depends on the type of asset and the country of its origin (generally from 0% to 20% of the customs value). There is special relief from customs duties for qualifying goods contributed to the charter capital of Russian companies with foreign investments.
Russia was admitted to the World Trade Organization (WTO) in 2012.
Russia is a member of the Eurasian Economic Union (EAEU) as well (together with Belarus, Kazakhstan, Armenia, and Kyrgyzstan). The Union has a single customs territory, and sales between the member states are exempt from clearance formalities. Members of the EAEU apply unified customs tariffs and customs valuation methodology.
Customs processing fee
Goods transported across the Russian Federation’s customs border are subject to a customs processing fee with a flat rate. The fee depends on the customs value of transported goods. The fee is usually insignificant.
Excise taxes are generally paid by producers of excisable products on their domestic supplies. Excise taxes are also charged on imports of excisable goods. Exports of excisable products are generally exempt from excise taxes. Excisable goods include cars, tobacco, alcohol, and certain oil products. Special excise rates for each type of excisable goods are established in the RTC. The rates vary widely and are based on various factors.
The maximum property tax rate is 2.2%, and regional legislative bodies have the right to reduce it. Property tax is charged on fixed assets only (including leased out property). Intangible assets, inventories, work-in-progress, and financial assets are not subject to property tax in Russia.
Property tax is not charged on:
- fixed assets included in the first or second depreciation groups (equipment used for up to three years), or
- movable property entered into a company’s books as of 1 January 2013 as fixed assets, except for property obtained as a result of:
- reorganisation or liquidation of legal entities, or
- transfer or acquisition from related parties.
Starting from 2018, the exemption of movable property is available only in those Russian constituent regions where local legislation allows it. The maximum tax rate applicable to such property in 2018 is 1.1%.
From 2015 through 2034, a zero rate applies to trunk gas pipelines and structures constituting integral parts of such pipelines, as well as gas production project sites and helium production and storage facilities, subject to certain conditions (e.g. initial commissioning after 1 January 2015).
At the same time, the property of natural monopolies, which was previously exempted, is now taxed. The tax rates applicable under the laws of Russia's constituent regions to public railroads, trunk pipelines, power lines, and facilities constituting an integral technical component of the above objects cannot exceed 1.9% in 2018.
In most cases, the average book value of fixed assets is taxed.
Certain real estate properties are taxed based on their cadastral value (which is close to their market value), namely:
- Administrative and business centres.
- Shopping centres and premises therein.
- Offices, retail outlets, public eateries, and consumer facilities.
- Immovable property of foreign entities with no PE in Russia or not related to their operations through a PE in Russia.
The tax rate for such properties may not exceed 2%.
Actual tax rates and special rules for determining the taxable base for certain properties are currently set by individual constituent regions. According to the law of the City of Moscow, the tax rates on such property equal 1.5% in 2018.
There are no transfer taxes in Russia.
Transport tax is imposed on certain types of land, water, and air transport registered in Russia. Fixed rates apply (per unit of horsepower, gross tonnage, or unit of transport), which may differ based on engine capacity, gross tonnage, and type of transport. The actual rates in Russia’s regions may be subject to a maximum ten-fold increase/reduction by the legislative bodies of individual Russian constituent regions. Reporting and payment rules have been established by regional legislative authorities.
A multiplier (up to three) depends on the age and cost of a car. For example, in the City of Moscow, the tax may be as high as RUB 200,000 per year for the most high-end class of vehicle.
There are no payroll taxes in addition to social contributions (see below) that an employer is responsible for.
The annual salaries of all employees are taxed under the following rules in 2018:
- Contributions to the Social Insurance Fund: Only the first RUB 815,000 of salary is taxed (at a rate of 2.9%).
- Contributions to the Pension Fund: The first RUB 1,021,000 is taxed at 22%, and the excess is taxed at 10%.
- Contributions to the Medical Insurance Fund: A 5.1% rate applies to the total salary.
Remuneration of foreign nationals temporarily staying in Russia are covered by (i) pension insurance contributions at a rate of 22% within the threshold of RUB 1,021,000 and a 10% top-up charge on remuneration paid in excess of the threshold and (ii) social insurance contributions at a rate of 1.8% within the threshold of RUB 815,000. The only exception made is for highly qualified specialists who hold a relevant work permit.
Mineral Resources Extraction Tax (MRET)
The MRET calculation depends on the type of mineral resource.
The MRET for coal, oil, gas, and gas condensate is calculated using the extracted volume of the relevant resource. The tax rate is established as a fixed rate multiplied by various coefficients linked to world prices and field characteristics. A zero MRET rate applies to oil extracted from greenfields in certain regions of Russia (e.g. Eastern Siberia, internal and territorial waters in the northern polar zone, the Azov and Caspian Seas, and the Nenets and Yamal regions) during their initial production stage.
The MRET on other natural resources depends on the value of the resources extracted. The tax rate varies from 3.8% to 8%. For instance, 3.8% for potassium salt, 4.8% for ferrous metals, 6% for products containing gold, and 8% for non-ferrous metals and diamonds.
Reduced MRET rates apply to investors in Russia's Far East (see Regional incentives in the Tax credits and incentives section for more details).
An environmental fee must be paid by manufacturers and importers of goods to be disposed of after they are no longer fit for use or consumption because of wear and tear, broken down by certain groups of goods. These include paper and paper products, rubber and plastic products, textile and leather, metals, and electronics.
It should be noted that the fee is not technically a tax, and is established by a special law that is not part of the RTC. It is levied on entities operating in specific industries whose products are determined to have an environmental impact that warrants compensation.
The fee is calculated by multiplying three values: (mass/quantity of goods subject to utilisation [or mass of packaging]) * (levy rate) * (utilisation standard in relative units).
The following groups of goods are subject to the highest environmental fee amounts in 2018: rechargeable batteries, computer hardware, consumer electronics, and some types of industrial equipment.
Regional authorities may introduce a trade levy in their respective municipalities (or federal cities). It is to be applied towards assets used in retail and wholesale trade.
To date, the levy has only been enacted by Moscow.