Effective from October 1, 2021, new VAT reverse charge rules are introduced regarding the determination of the tax base for withholding VAT. Under Reverse Charge rules, the responsibility for the accounting and reporting of VAT is shifted from the seller to the buyer of goods and/or services. Therefore, recipients of goods and/or services report both the output VAT (in the role of a seller) and the input VAT (in the role of a purchaser) on their VAT statement.
As per the new rule, A Russian organization or individual entrepreneur is obliged to withhold and remit the VAT due via reverse charge as a tax agent in cases where the purchase is carried out from a foreign supplier who is:
- Not registered with the Russian Federal Tax Service Inspectorate.
- Or is registered only in connection with the presence of real estate, vehicles or in connection with the opening of a bank account
An obligation to withhold also arises for a Russian organization where a purchase is carried out from the above-mentioned foreign supplier directly from the foreign company without the participation of their separate subdivision in Russia.
Implication:
Russian organizations will be obliged to withhold and remit VAT due if they are procuring goods/services from unregistered foreign suppliers meeting specified conditions.