Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

July 22, 2020

Russia proposes draft bill limiting VAT exemption for foreign entities licensing software and databases

On 21 July 2020, the Russian State Duma (the highest legislative body) approved in the first and second readings a draft bill limiting applicability of the value-added tax (VAT) exemption upon a transfer of rights to software and databases. The proposed legislative changes would affect, inter alia, foreign companies licensing rights to software or databases to Russian companies that currently benefit from VAT exemption.

Current regulation

Currently, a VAT exemption is applicable upon the provision of exclusive rights to software and databases, as well as the transfer of rights to use such intellectual property (IP) rights under a license agreement. Many foreign e-service providers who license rights on software/databases benefit from this VAT exemption.

Proposed changes

Effective 1 January 2021, the mentioned VAT exemption would be available only to companies, providing exclusive rights or license rights to use with respect to software and databases included in the Unified Register of Russian software and databases (the Register), except for software or database allowing distribution of advertising on the Internet and accessing to marketplaces. To be included in the Register, software and databases, inter alia, should meet the following requirements:

1. Exclusive rights to software or databases belong to a Russian legal entity with the total share of direct and (or) indirect participation of the Russian legal entities, municipalities, Russian non-commercial entities or Russian citizens exceeding 50%.

2. Total amount of payments transferred under license or other agreements (under which the rights to the software or database are granted) to the foreign entities does not exceed 30% of revenue rights transfer per a calendar year.

Hence, effectively, application of this VAT exemption will no longer be available to non-Russian IP holders transferring rights to software or databases to Russian customers.

The draft bill reamins under review by the State Duma and in order to become effective it must pass three hearings in the State Duma and be approved by the President. In the current version of the bill there is no transition period, accordingly, the legislative changes would become effective starting from 1 January 2021.

Businesses that may be affected by upcoming changes should consider taking the following preparatory steps:

1. Assess whether the company’s software and databases may be included in the Unified Register of Russian software and databases for VAT purposes.

2. Review VAT clauses included in existing agreements with Russian customers in order to fix VAT obligations.

3. Review the calculation of VAT and invoicing procedures as well as reporting obligations if the company previously applied VAT exemption to its contracts.

4. Develop a strategy for the transition period and managing cashflows with the Russian customers considering new VAT rules.


For additional information with respect to this Alert, please contact the following:

Ernst & Young, Moscow



The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


Copyright © 2024, Ernst & Young LLP.


All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.


Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.


"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.


Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or Please refer to the privacy notice/policy on these sites for more information.

Yes, I accept         Find out more