As you know, starting from October 1, 2022, new rules for the payment of VAT came into force when it comes to buying services from companies from abroad, carried out 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 the update of these rules regarding the payment of VAT on services provided via the Internet, foreign companies were required to pay VAT. Such changes were needed because there were economic sanctions imposed on Russia, due to which some payment systems, through which funds were transferred between Russian and foreign organizations, stopped working in Russia. Because of this, suppliers from abroad will lose the opportunity to legally and within certain time limits pay VAT on electronic services.
The list of electronic services, upon the acquisition of which Russian companies and individual entrepreneurs must pay VAT themselves, is fixed in paragraph 1 of Art. 174.2 NK:
• granting rights to use PC programs, including computer games, and databases, including through providing remote access to them;
• advertising services on the Internet;
• placement of proposals for the purchase of goods, works, services;
• providing an opportunity to establish contacts and conclude transactions between sellers and customers on the Internet;
• storage and processing of information on the Internet;
• providing a real-time opportunity to place information in the information system;
• provision of domain names, hosting services;
• administration of information systems and sites;
• granting rights to e-books and other electronic publications, information, educational materials, graphic images, as well as musical and audiovisual works;
• searching and providing the customer with information about potential customers;
• access to search engines;
• maintaining statistics on sites.
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 conducts business in Russia. That is, any Russian organization will become a VAT tax agent if it purchases electronic services from a company from abroad.
It is important to note that there are some electronic services on which this rule is not set:
• consulting services by e-mail;
• provision of services for providing access to the Internet (provider services);
• transfer of rights to use programs on physical 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
The following persons do not become tax agents for VAT when purchasing electronic services from a foreign supplier:
• companies and individual entrepreneurs 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 individual entrepreneurs in transactions through intermediaries, which are separate subdivisions of foreign sellers located in Russia – in such situations, the functions of a VAT tax agent are performed by intermediaries;
• companies and individual entrepreneurs in transactions through Russian intermediaries – in such cases, the functions of a tax agent for VAT are assigned to intermediaries.
Among other things, the updated rules will not apply to those purchases that were made before 11/01/2022. And if the buyer has made an advance payment to a foreign supplier before this date for electronic services, then he will not be obliged to pay VAT for it.
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, article 164 of the Tax Code).
How to pay tax to the budget
The tax is paid simultaneously with the transfer of payment to a foreign organization from which a Russian company buys electronic services. When there is no instruction to pay VAT, the bank that serves the Russian organization will not accept its instruction to transfer money to the supplier.
Starting from 2023, a single tax payment will be introduced. This means that Russian companies that purchase electronic services from foreign organizations will pay VAT in its composition in equal installments within three months following the expired quarter no later than the 28th day of each month. That is, he will need to withhold tax when paying for foreign electronic services, but not immediately transfer it to the budget.
How to declare the amount of VAT paid to be deductible
When an electronic service was provided by a supplier from abroad, a Russian company that has become a tax agent has the opportunity to claim the amount to be deducted. To do this, you must have an invoice that confirms the payment of tax to the budget, while the electronic service must be purchased for the implementation of VATable activities. The tax agent registers his invoice generated when paying for the 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 return
As you know, tax agents must submit a VAT return, 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 on transactions for which VAT was charged 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 in line 180.
• in section 8, the tax agent’s invoice is indicated with the transaction type code “06” (p. 010).
The rest of the tax return is completed in the general manner.