Key developments in harmonisation of Russian VAT rules with Belarus and at the EAEU level

Treaty between Russia and Belarus on general principles of indirect taxation of 03 October 2022 (hereinafter – Treaty)

The Treaty is in force starting from 31 January 2023 and establishes basic guidelines in regard to VAT. Russia and Belarus agree not to decrease the 20% ordinary VAT rate and the 10% reduced VAT rate under their respective tax regulations. Moreover, the Treaty limits the number of cases in which the two countries may apply VAT exemptions, reduced or 0% VAT rates. The Treaty specifies the revenue threshold that may be established by domestic law, within which taxpayers may not be regarded as VAT taxpayers.

Summing up, the Treaty harmonises VAT rules for Russian and Belarusian businesses. In practical terms, the Treaty prevents both Russia and Belarus from providing supportive measures that would be harmful to the other country.

Amendments to the EAEU-treaty

The basic allocation rules for VAT are established at the level of the EAEU with respect to supply of goods, works (meant generally, albeit subject to exceptions) and services. The VAT on supply of goods is payable at the place of destination and at the place of origin 0% VAT rate applies under condition of provision of an application, confirming the payment of VAT in the place of destination along with several other documents.

With respect to the supply of works and services, VAT shall be payable at the place of supply, which is generally the country of the seller. However, there are some exceptions to this rule, when the place of supply is determined by the country of the buyer, e.g. when providing consulting services or IP rights.

The new amendments to the EAEU-treaty establish the general principles for VAT on the cross-border provision of electronically supplied services (ESS) within the EAEU. Several EAEU member states are yet to ratify the amendments.

Each EAEU member state has already introduced taxation of ESS provided by foreign persons for the purpose of taxation of IT companies’ revenues otherwise not taxable in the country of customer. Cases of double (non-)taxation with VAT emerged when supplying ESS within the EAEU due to mismatches between local regulations. The amendments are thus aimed at avoidance of such cases.

Under the respective provisions, the ESS are subject to VAT at the place of the customer, whereby the rate, specifics of determining the tax base etc are determined in accordance with domestic law.

One of the key takeaways from the aforementioned amendments is the distinction between provision of ESS to private individuals and provision of ESS to businesses. For the former, the ESS provider shall personally calculate and pay VAT (which requires registration with the local tax authority), while for the latter the tax agent procedure applies whereby VAT is withheld and paid by the customer. This is in line with current rules for VAT on ESS under Russian tax law.

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Photo: Sergey Novikov - stock.adobe.com