Russian Federation: Tax Alert 3/96 - 15 April 1996

Last Updated: 20 May 1996

In this tax alert we look at the amendments to the VAT Law which were officially published in the Rossijskaja Gazeta of 9 April 1996. We can send you, on request, an unofficial English translation of the law.

The Law enters into force from the day of its official publication and is to be applied to "relations, which have commenced since 1 January 1996". This may be understood to mean that the new law does not apply to amounts already outstanding before 1 January 1996 but which will be received after the new law has entered into force. However, we hope that this and other transitional matters will be clarified soon by the tax authorities.


New exemptions include in-kind contributions to the charter capital of enterprises with foreign investment and construction of living space that is at least 40% financed from the state budget.

The current exemption for imported technological equipment now includes components as well as spare parts, which means that such equipment can now be assembled in Russia.

Resale of technological equipment will, however, still be taxable.

The wording of the new law suggests that loans and financial aid will now be exempt from VAT, as the taxable base is defined as "turnover from the sale of goods, works and services". To confirm this beyond doubt the applicable provisions in the VAT Instruction and Decree No. 2270, according to which loans and financial aid are subject to VAT, will have to be amended. Interest paid to entities other than banks may still be taxable.

The new law exempts 'banking operations' from VAT. The scope of this exemption appears to be wider than under the old law, where only 'operations with bank accounts' were exempt. The exemption may now, in particular, include commission fees for exchanging foreign currency and processing import passports, which were previously subject to VAT.


Services related to real estate are taxable if that real estate is located in the Russian Federation. If a service relates to moveable property or is rendered in the sphere of culture, art, education, physical culture, sport or similar activity, it is taxable if the service is physically performed on the territory of the Russian Federation.

A special rule is introduced for most 'professional services': consulting, legal, accounting, engineering, advertising and information processing services, as well as for the secondment of staff, transfer of ownership or rights to patents, licenses, trademarks, copyrights and other similar rights, leasing of moveable property (except for transport vehicles of transport companies) and agency services of hiring an entity to render any of these services (hereinafter referred to as 'professional services'). If the supplier of professional services is resident in one country and the recipient in another, the service is subject to VAT if the recipient has its 'place of economic activity' in Russia.

Where the services do not fall into any of the categories mentioned under 7 or 8, they will be subject to VAT if the supplier has its place of economic activity in Russia.

The wording of the law is unclear over what level of activity would create a 'place of economic activity' in Russia. Under European Union VAT legislation, which has apparently been used as the model, a place of economic activity is considered to be an 'establishment' or 'fixed place', i.e. some form of permanent presence. For there to be a taxable event under European rules, the supply must subsequently be received by that fixed place or directly relate to it.

The wording of the new law does not give any indication that this last test would be applied under Russian VAT law. This means that Russian enterprises providing services to foreign entities will have to make a judgement whether to rely on the formal characteristics of the transaction such as to whom the service is physically supplied and the invoice submitted, or whether to consider in detail if the substance of the service relates to a place of economic activity as described above.

The same problem occurs for a Russian recipient of services if these are rendered by an unregistered foreign legal entity: if taxable, VAT should be withheld from the payment by the Russian recipient. This will apply to those professional services that were not previously taxable if performed outside the territory of the Russian Federation. On the other hand, professional services that are rendered to an entity without a place of economic activity in Russia should now be exempt from VAT, but practice will have to show whether the law is going to be applied in both ways.

Here are some examples of problem areas under the new rules:

A Russian supplier performs professional services for a foreign client. In order not to have to charge VAT, the Russian supplier must be able to determine that the foreign customer does not have a place of economic activity in Russia. The service should not be taxable if the recipient has no presence in Russia and the service provided bears no relation to present or future activity in Russia.

In other cases, all circumstances should be considered carefully before deciding not to charge VAT;

A foreign supplier that is not registered with the Russian tax authorities provides professional services to a Russian customer. As it certainly will have a place of economic activity in Russia, the Russian customer should now withhold VAT from payments to the foreign supplier. The service should, however, not be taxable if supplied to a foreign branch of the Russian customer. The current wording of the law does, however, not support this nuance.

The service is physically rendered abroad and relates to moveable property or is rendered in the sphere of culture, art etc., but the recipient has a place of economic activity in Russia. If the service falls within the scope of the 'professional services' described above, VAT would apparently be chargeable, although this may potentially lead to services which are not related to activity in Russia being theoretically subject to Russian VAT;

The service is physically rendered abroad in the sphere of culture, art. etc. or rendered, as a professional service, to a foreign legal entity without any presence in Russia (i.e. no place of economic activity) but relates to immovable property in Russia. The tax authorities might take the view that the immovable property rule prevails, even if the services relate to real estate projects that are planned or still under construction.

Providers of services as well as recipients - if the provider is an unregistered foreign legal entity and withholding VAT applies - have to make a judgement as to whether the service provided is taxable under the new rules. In most cases, a decision not to charge or withhold VAT should be taken only after careful consideration. We will issue a further Tax Alert after the Instruction clarifying the changes in the VAT Law has been issued and other points have been clarified with the tax authorities.


VAT incurred on the domestic purchase of tangible or intangible assets can now be deducted fully after the assets have been recorded in the books of a company. Under the old law, input VAT on assets purchased in Russia had to be written off in equal instalments over a period of 6 months, starting from the moment they were put into operation.

Legal developments are usually reported in Tax News Reporter on official publication. This may be long after the law is issued.

This publication is intended for public guidance only and should not form the basis for specific decisions.

For further information contact the firm on +007 503 232 5511 or enter a text search 'Coopers & Lybrand' and 'Business Monitor'.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions