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September 27, 2021

Russia refines application of VAT reverse charge mechanism

Effective 1 October 2021, the Russian Tax Code will be amended for cases where the value-added tax (VAT) tax agent mechanism could be applied, also referred to as the VAT reverse charge.

Currently, the provision stipulating the application of the VAT tax agent mechanism is formulated rather broadly in the Russian Tax Code. Specifically, it states that if VAT taxable supplies of goods (works or services) made by foreign companies that are not registered with the Russian tax authorities, the VAT due should be paid by the Russian business customers via the tax agent mechanism.

Effective 1 October 2021, the law specifies that the tax agent mechanism should be applied in the following cases:

(a)   A VAT taxable supply is made by a foreign company that is not registered with the Russian tax authorities or by a foreign company that is registered with the Russian tax authorities due to ownership of immovable property or vehicles in Russia or due to the fact that the foreign company has a bank account in a Russian bank.

(b)   A VAT taxable supply is made by a foreign company with a presence in Russia in the form of a branch or a representative office, except if the goods (works or services) are supplied in Russia by or with the involvement of such a branch or a representative office.

However, some uncertainty remains. The changes do not directly regulate situations where:

  • A foreign company provides electronic services (e-services) in Russia to the Russian B2B customers.


  • The foreign company is VAT registered due to the provision of e-services and provides other VAT taxable services (non-e-services) to the Russian B2B customers.

In such circumstances it is not clear whether the tax agent mechanism may continue to be applied to foreign providers of e-services. To date no clarifications have been issued on these points by the Russian Ministry of Finance and the Federal Tax Service.

In the absence of published guidance from the Russian tax authorities or the Ministry of Finance, companies that have agreed with their Russian customers to apply the VAT tax agent mechanism for e-services rendered in Russia, may want to obtain some guidance from the tax authorities as to whether this approach is still acceptable.


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

Ernst & Young Valuation and Advisory Services LLC, Moscow

Ernst & Young (CIS) B.V., Moscow branch


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