Starting January 1, foreign companies selling e-content via the Internet in Russia are required to register private offices in Russia, submit information on their sales in the country, and pay a 18% value-added tax.
The tax applies to the following types of content or services:
- selling and giving access to e-books, audio and visual content, images and music;
- computer programs and games;
- online advertising and other types of information on service or product offerings;
- domain name registration and hosting services.
This VAT will be levied based on the customers identified as Russian residents by their credit card number or IP addresses.
These rules, nicknamed ‘Google tax law,’ were introduced this past summer via amendments to the Russian tax code. They apply, in particular, to Apple, Google and Microsoft, which generate revenues through their application stores in Russia, as well as to such service providers as Gett and Uber.
Aiming to balance the scales between domestic and foreign Internet companies operating in Russia, the law may bring in to state coffers some ten billion rubles (approximately $160 million), according to its advocates.
Tax discrimination
However, foreign companies have no obligation to create a legal entity in Russia, and may pay the tax via their local partners.
This is the case of Uber, under the condition that its Russian drivers be registered as legal entities or individual entrepreneurs, and that the responsibility for the settlement of the VAT be specified in their contract with Uber N.V., which is registered in the Netherlands.
The 18% VAT applies only to the commission fee paid by the drivers to Uber — in exchange for what is regarded as an “electronic service,” — not to the total fare settled by the client.
These rules were specified by the Russian tax service in an official answer to Uber’s inquiry in December last year.
Irina Gushchina, head of communications, Russia & CIS at Uber, told Russian daily Izvestia that Uber will compensate the VAT to its partners.
Stanislav Shvagerus, a Russian expert at IRU, a global road transport organization which aims to protect the rights of traditional taxi companies, believes that the Federal Tax Service (FTS) took up a wrong attitude towards Uber.
“Even though Uber has registered a Russian legal entity (“OOO Uber Technology”), the company is recognized as a non-Russian tax resident. According to FTS, Uber provides information services, which contravenes the Russian legislation. In practice, the US company provides its users with the ability to book a vehicle using means of communication. Therefore, a passenger pays for transportation and not for an information service, as stated by Uber,” Shvagerus said in an exchange with Izvestia.
“Russian legislation must be applied to all the taxi service providers operating in Russia. Gett, Yandex Taxi and Uber offer identical services regardless of whether they are a Russian or foreign company. Therefore, they have to pay equal taxes (VAT, tax on income, payroll tax),” he believes.
Cancelled contracts
In Russia, according to him, “many taxi drivers cancel their contracts with Uber by fear of the tax controls and related risks.”
Uber’s representative office in Russia declined to answer Izvestia’s inquiry on the matter.
Internet access services, as well as offline sales of physical items or software, are not concerned by the law adopted in 2016.
However, the Russian government is considering applying VAT to purchases of physical goods made online in foreign Internet stores. If confirmed, this new tax regime may have a significant impact on cross-border e-commerce flows, which have been developing fast in Russia over the past few years (see EWDN report).
Sources: Izvestia, The Moscow Times, Subsidii.net. This story has been republished by VentureBeat, a syndication partner of East-West Digital News.
