We would like to draw your attention to the following important changes in the Russian legislation from 01.07.2019:
articles 170 and 171 of the Russian tax code are adjusted by the Law No. 63-FZ of 15.04.2019 in respect of deduction of input VAT on transactions related to works and services the place of provision of which is not recognized as the territory of the Russian Federation. We would like to remind that such operations in accordance with article 148 of the Russian tax code, in particular, include the provision of consulting, information, marketing and advertising services to the foreign customers.
Until 1 July 2019 input VAT on purchases related to such activities should be included in their cost (i.e. reflected as expenses). From July 1, the companies will have the right to recover these VAT amounts. Together with this, it will be impossible to include the amounts of input VAT in expenses according to the previous rules. However, it should be noted that in all tax periods when the amount of the claimed tax deductions exceeds the amount of VAT accrued, the company will need to undergo a desk tax audit.
The above changes will also affect the calculation of the proportion of taxable and non-taxable transactions for the deduction of input VAT relating to indirect expenses (5% rule): when calculating the proportion, the transactions in which the place of works and services provision is not recognized as the Russian Federation will be treated as taxable transactions. That means that those companies which provide both services, the place of sale of which is recognized and not recognized as the territory of the Russian Federation, will not have to keep separate VAT accounting and will be able to fully deduct input VAT subject to other necessary conditions.
Please note that the new rules do not apply to VAT exempt transactions under article 149 of the Russian tax code (tax benefits).
We would like to inform you that for the first time the company will have to calculate VAT tax base according to the new rules in the 3rd quarter of 2019, reporting for this period should be submitted to the tax authorities by 25 October 2019.
