VAT must be accounted for by the vendor on sales of goods and services on the territory of Russia, and by the importer on the import of goods into Russia. Exports are not subject to VAT.
With regard to services, those performed in Russia are normally subject to VAT. Those which are performed outside Russia for an entity which has a place of economic activity in Russia, are also subject to VAT if they are services of a legal, accounting, consulting etc nature or are related to patents, licences or similar rights. Services related to real estate situated in Russia are always subject to VAT.
Supplies which are subject to VAT are thus often made by entities which have no presence or tax registration in Russia. In this situation, the Russian entity must withhold VAT in making payment, although this VAT may normally be credited as input tax.
In many circumstances, VAT is chargeable on transactions between branches of the same Russian companies.
RATES AND TAX BASE
Value added tax is charged at the rate of 20% on most goods and services and 10% on a range of basic food products and children's goods. Exemptions from VAT are described below. VAT is calculated on one of three bases:
VAT is charged at the applicable rate on the value applied for customs purposes, increased by any applicable import tariff and excise liabilities, freight and insurance (to the Russian border). Raw materials, medical and `technological' goods are exempt from import VAT.
Manufacturing and service operations
VAT is charged to customers at the applicable rate and paid over to the authorities net of input VAT paid on purchases and allowable expenses - the `classical' method. For manufacturers, input VAT is only credited at the time the relevant purchase is consumed in production. The classical method also applies to wholesale and intermediary companies operating on a commission basis.
VAT is charged at 16.67% on the difference between the gross, VAT inclusive, sales price and the VAT inclusive purchase price or customs value on import. Against the VAT thus calculated is credited input VAT on transport and overhead costs incurred in Russia.
INTEREST ON LOAN FINANCE
Interest, other than that paid to a bank or credit institution, is liable to VAT. If paid overseas, this is usually accounted for on the reverse charge basis.
Credit for input tax in respect of training, entertaining and advertising expenditure is limited by reference to the same limits as the profits tax deduction (see above). VAT on non bank interest paid is not creditable. VAT on tax allowable expenses is deductible, and also that on purchased fixed assets (except for cars and minibuses). VAT on construction, however, is not creditable, and must be capitalised and depreciated in line with the asset.
Apart for the import VAT exemptions already described, exemptions include those for insurance and certain financial services, medical services and the letting of accommodation to accredited representative offices of overseas companies resident in an approved country. No credit for input tax suffered is available.
For foreign investors, however, the most significant exemption is for in-kind contributions to the charter capital of a Russian company with a foreign shareholder.
For further information contact Bauke van der Meer on tel: +7 503 232 5511 fax: +7 503 232 5522 or e-mail directly: Click Contact Link or enter a text search 'Coopers & Lybrand' and 'Business Monitor'
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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