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Taxation of e-services: back to basics

1 August 2022

On 14 July 2022, the Russian President signed Federal Law No. 323-FZ* (the “Law”) which, among numerous changes to Russian tax legislation, amends the current procedure for the calculation and payment of VAT by foreign e-service providers. The respective changes will come into force on 1 October 2022.

Overview of changes

The amendments effectively return to the mechanism of paying VAT through a tax agent for e-services provided by foreign suppliers except in cases where such services are provided to Russian individuals who are not individual entrepreneurs. In the latter case, foreign suppliers of such services retain the obligation to calculate and pay VAT to the Russian budget themselves.

Furthermore, according to the Law, the provision that sets as conditions for offsetting VAT on e-services the existence of an agreement or a settlement document with the amount of tax and the foreign organisation’s tax identification number and so-called “KPP” code is no longer valid.


Before the Law came into force, foreign providers of e-services were required to register for tax purposes and to calculate and pay VAT for such services themselves.

As a reminder, the relevant obligations for B2B e-service providers came into force on 1 January 2019 and were criticised by the business community from the outset. The changes were not sectoral in nature and therefore effectively created additional obligations for a wide range of entities, not just IT companies, which were primarily targeted by the changes.

In practice, these foreign suppliers also faced the additional costs of opening rouble accounts and paying VAT to the Russian budget, as well as the preparation of quarterly tax returns.

In this respect, the tax authorities have previously issued clarifications which effectively allowed Russian purchasers of e-services to continue voluntarily acting as tax agents and foreign suppliers to file returns with zero values and avoid re-payment of VAT to the budget. As the practical difficulties of paying VAT to the Russian budget escalated in 2022, such clarifications have taken the form of a recommendation from the tax authorities.

For a long period of time, the business community had expected that the legislation governing the taxation of e-services would make exceptions for intra-group flows and/or for companies with few customers in Russia. The changes introduced by the Law proved to be more expansive and apply to the entire B2B sector. However, the Law still contains some uncertainties and room for different interpretations, which are likely to be eliminated when further amendments are adopted and regulatory clarifications are issued. In particular, another bill* specifying the tax registration implications for providers of e-services in Russia has recently been posted for public hearings on a specifically designated official portal of draft regulations.


First and foremost, the complexity is created by the fact that the Law does not amend the provisions of the Tax Code which oblige foreign suppliers providing e-services to register with the Russian tax authorities.

Therefore, formally, the obligation to be registered with the Russian tax authorities remains for providers of e-services in the B2B segment, although they are no longer required to calculate and pay VAT themselves according to the Law. Apart from obvious difficulties related to the registration of foreign suppliers of e-services in Russia in the current realities, such a literal interpretation may lead to technical difficulties in applying the provisions of tax legislation.

Thus, according to the legislation in force, an estimated tax rate of 16.67% should be applied to the tax base for e-services provided by foreign suppliers liable to be registered with the tax authorities. At the same time, according to the wording of the Law, the mechanism of determining the taxable base of e-services as their cost inclusive of the VAT due has to be kept only in cases when such services are rendered to individuals. However, the estimated VAT rate for e-services was at one time specifically introduced due to the fact that the tax base for such services was in all cases determined inclusive of VAT.

Also, based on a literal reading of the provisions of the Law and current legislation, foreign suppliers of e-services in the B2B segment, while remaining registered with the Russian tax authorities, may formally retain the obligation to calculate and pay VAT on so-called “other sales” (we reported earlier that, according to the tax authorities, once registered in Russia, providers of e-services have the corresponding obligations with regard to all their taxable transactions, not only e-services).

It is worth noting that current tax legislation does contain provisions that allow e-service providers to deregister from tax accounting after they cease to carry out their respective activities. However, the applicability of these provisions to e-service providers in the B2B segment is subject to further clarification. This is because, on the one hand, the obligation to calculate and pay VAT themselves is excluded for them, but, on the other hand, the supply of e-services does not cease even after the Law enters into force.

Finally, the Law does not contain any transitional provisions with respect to rules coming into force as early as 1 October 2022. This in practice may lead to difficulties in rebuilding relationships with current Russian clients, as well as with settlements for previous periods. For example, difficulties may arise in reimbursing overpaid VAT from the Russian budget arising from the refund of prepayment amounts to Russian customers when such prepayment was received before the Law came into force and is returned after the new provisions began to apply.


Thus, foreign e-service providers and their Russian counterparties are advised to analyse the existing and planned flows of e-services in light of the Law and to assess the necessary changes, including in contracts, as well as possible accompanying complexities.

We, for our part, will continue to follow the situation closely and keep you informed of changes and clarifications.

* In Russian

Co-authored by Valeriy Chelnokov, Paralegal in Tax.

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