Russia changes the application of the VAT reverse charge mechanism

October 1, 2021

From the 1st of October 2021, the Russian Tax Code will be modified for cases where the VAT tax agent mechanism might be applied. This mechanism is also known as VAT reverse charge. Therefore, starting as of the above date, a reverse charge mechanism should be used in these situations:

1. If VAT taxable supply is made by:

   1) The foreign corporation not registered as VAT payer in Russian Federation; or

   2) A foreign corporation registered as VAT payer in Russian Federation because this foreign corporation owns the immovable property and/or vehicles in the territory of the Russian Federation; or

   3) A foreign corporation has a financial account in one of the financial institutions of the Russian Federation.

2. If VAT taxable supply is made by a foreign corporation having a branch and/or representative office in the territory of the Russian Federation, except for cases where such VAT taxable supply takes place with the involvement of a branch or representative office.

However, this new Russian Tax code modification leaves some uncertainty for foreign corporations that provide B2B electronic services (e-Services) in Russia. It is unclear whether reverse tax mechanism can continue to apply to foreign e-Services providers. Today, neither the Russian Ministry of Finance nor the Federal Tax Service has clarified this issue. Therefore, foreign e-Services providers, who have agreed with their Russian B2B customers to apply a reverse charge mechanism, shall seek Russian Tax Authorities guidance if such an approach is still permitted.