Taxation of Cross-Border Goods: How New Rules Will Affect Marketplaces and Consumers
In October 2024, Russia’s Ministry of Finance proposed a radical overhaul of taxation for goods ordered through foreign marketplaces. The initiative includes introducing VAT on all cross-border
purchases and reducing customs duties from 15% to 5% for goods priced under €200. While the authors of the idea claim these measures will level the playing field for domestic retailers, industry representatives warn of potential negative consequences for consumers and businesses.
1. Key Proposals from the Ministry of Finance
VAT on Cross-Border Goods
Starting in 2029, a 20% VAT will apply to all categories of goods purchased through international platforms, regardless of price. Currently, this tax only applies to traditional B2B imports, while direct B2C sales to consumers are exempt.
Lower Duty Rate but Broader Application
Under current law, a 15% customs duty applies if an order exceeds €200. The proposal lowers this rate to 5% but extends it to all goods, irrespective of value. The goal is to combat illegal imports and create fairer competition between foreign and local businesses.
2. Business Reaction: Risks for Marketplaces and Consumers
20–30% Price Increase
Major market players have strongly opposed the initiative. Ozon representatives warned that the new rules would raise costs for buyers, as small foreign sellers would be unable to absorb the VAT themselves. AliExpress expressed concerns that, combined with already high delivery costs (up to 50% of the purchase price), the additional tax burden could make many products unaffordable.
Reduction in Product Selection
Wildberries stated that up to 70% of goods on its platform could disappear due to the tax changes, particularly rare components and niche products not manufactured domestically. The OPORA Russia business association also opposed the reforms, highlighting risks to small businesses that rely on cross-border sourcing.
Experts note that cross-border trade accounts for less than 1% of Russia’s total retail sector, making the proposed reforms disproportionate to their expected impact. Order volumes could drop by 70–75%, with prices rising by around 25%.
3. International Regulatory Experience
EU (IOSS System)
The EU’s Import One-Stop Shop (IOSS) system allows VAT to be included in the product price at checkout, simplifying customs clearance and speeding up delivery. However, Russia has yet to adopt a similar mechanism, complicating tax administration.
USA and Canada
Both countries have duty-free thresholds (800intheU.S.,C800intheU.S.,C20 in Canada), but their equivalent of VAT (GST/HST) applies to nearly all imported goods. This ensures tax transparency while allowing authorities to monitor cross-border shopping revenues.
4. Alternative Approaches
Business communities suggest the following alternatives:
- Automated VAT Tracking: Adopting an IOSS-like system to automatically calculate taxes at purchase, easing compliance for buyers.
- Support for Small Businesses: Maintaining exemptions for goods with no domestic alternatives, fostering local production growth.
- Gradual Implementation: A phased transition to new rules to allow market adaptation and reduce industry disruption.
The new tax proposals create uncertainty for cross-border e-commerce. The government faces a tough balancing act: aligning fiscal policy with consumers’ need for affordable, high-quality goods. While debates continue, no official decisions have been made yet. Time will tell how effective these taxation mechanisms will be and what impact they will have on Russia’s economy.