Unit 15. The vat in russia the vat in russia

Exercise 1

Practise reading the following aloud

a) provisions, automatically, prior, liable, medicine, science, premises, insurance, securities, penalties, technological, licences, auxiliary, loading, exemption, difference, recoverable, balance, otherwise, accounting, quarterly,

b) legal entities, individual entrepreneurs, permanent establishments, adjusting prices, identical goods, relevant comparison data, actual expenses incurred, if applicable, endorsed by, advertising nature, warranty period, college of advocates, extremely time-consuming,

c) to be borne ultimately by the consumer, can be granted, to be available, to be exempt from, to be accredited, to be required, to be acquired.

Along with the profit and excise taxes, the VAT is a major source of revenue for Russia’s federal budget.

The principle of levying VAT is similar to EU in part that it is borne ultimately by consumers, but collected through taxable persons. The provisions regarding the value added tax in Russia are in Chapter 21 of the Tax Code Part II.

The taxpayers for VAT purposes are all Russian legal entities, individual Entrepreneurs, and foreign legal entities doing business in Russia through Permanent Establishments. Registration for VAT purposes is automatically a part of tax registration as such.

The law gives the right to small-size businesses to be relieved from the VAT taxpayer’s obligation. This exception can be granted to small businesses with taxable profit from sale of less than RR1m during three prior months. This exception is not available for VAT payable at customs for imports and for those taxpayers who are liable for excise tax.

The subject of taxation is

• Sales (including barter) of goods, works and services in Russia,

• Imports into Russia,

• Goods and services for own use ( including self-construction).

Goods, works and services for own use (consumption) are those imported goods or services consumed for own use, which are not deductible for the purpose of profit tax.. Construction and works for own use also fall under this category.

The tax base for VAT purposes is all the revenue earned from the sales of goods, works, and services. The tax base is determined as the value agreed by the parties. However the taxation authorities have the right to adjust the price to that of the market according to the general rules of adjusting prices for tax purposes. The tax base for services and goods consumed for own use is based on the price of identical goods or services. In the absence of relevant comparison data the market price will be used. Construction work for own use is based on the actual expenses incurred. For the imported goods and services the tax base is determined as the sum of the purchase price, transportation costs, customs duties and excise if applicable.

The standard rate for goods, works, and services is currently 18% (from January, 1, 2004). The reduced rate of 10% applies to certain non-excisable food products and goods for children in accordance with a number of lists endorsed by the government: medicines and medical products; newspapers, magazines, and books related to education, science, and culture (provided they are not of advertising nature) and also certain services related to their production.

Sales of certain goods and services are zero-rated.

Below is the list of some of the exempt sales.

• Rent of premises and apartments to foreign accredited Representation Offices and the accredited foreign citizens (this exemption is given in respect to companies from those countries that extend the same treatment to Russian companies or organizations)

• Public transport

• Rent of apartment to individual

• Insurance

• Banking services, medicine and medical equipment ( with detailed list of exempted goods and services approved by the Russian government)

• Education services (non-commercial)

• Securities trade

• Interest on loans

• Repairs during warranty period without additional payment

• Late payment penalties

• Interest on credit sales (within limits)

• Goods and services under Production Sharing Agreements

• In-kind charter capital contributions in form of technological equipment

• State duties and levies for licenses, registrations, etc

• Culture and arts services (in certain cases)

• Legal services by members of the college of advocates.

Export goods and services are VAT-free in the following main cases:

• Export of goods (with exemptions of oil and gas exported to CIS countries)

• Direct auxiliary services in connection with exporting of goods (e.g., transport, loading)

• Transit transportation

• Goods, works, and services for use by diplomatic missions and diplomats.

Exemptions from import include specific technological equipment and spare parts contributed to the charter capital of Russian entities.

The VAT due to the government is calculated as the difference between Output VAT collected from customers (clients) for goods, works or services sold, and Input VAT paid to suppliers. Input VAT paid to suppliers is generally recoverable as long as the underlying costs relate to business activity of the company. Input VAT refunds are made only to tax registered person making taxable supplies in Russia, and in practice obtaining refunds of Input VAT is extremely time-consuming. For recovering of Input VAT, assets, goods or services have to be acquired for production purposes or for resale and they have to be recorded on the balance of the company.

Taxpayers with monthly revenue over RR1m are required to pay VAT and file VAT returns on monthly bases (by the 20^th of the following month); otherwise, VAT accounting and payment is quarterly.