Changes to the rules for the payment of VAT by tax agents and the VAT return form

Changes to the rules governing the payment of VAT by tax agents came into effect from 1 January 2023. The relevant amendments to the Russian Tax Code were made by Federal Law No. 565-FZ of 28 December 2022 ("the Law"). In addition, Order No. YeD-7−3/1191@ of the Federal Tax Service of 12 December 2022 ("the Order") makes changes to the VAT return form, the procedure for completing it and the format in which it is submitted to the tax authorities.

Changes to the rules for the payment of VAT by a tax agent

The Law made the following amendments (effective from 1 January 2023):

1. The provision requiring tax agents to pay tax at the same time as they pay funds to foreign persons who are not tax-registered in Russia has been excluded. Under the new rules, calculated tax must be paid by tax agents in the normal manner, i.e., in three equal instalments not later than the 28^th of each of the three months following a quarter that has ended;
2. Changes have been made to the conditions for the recovery of VAT calculated by a tax agent. In particular, recovery claims may be made for amounts of tax calculated (rather than paid) by a tax agent on the basis of documents confirming the calculation of tax by the tax agent.

Changes to the VAT return form, the rules for completing it and the format for filing it

The Order makes a number of changes to the VAT return form and the procedure for completing it:

1. Amendments are made to the rules for completing certain line items of Section 3 of the VAT return. However, the changes made by the Order do not address the matter of the payment of VAT by tax agents since there is no change as yet in the procedure for calculating the total amount of tax due. In particular, VAT calculated by a tax agent according to Section 2 of the tax return is not taken into account in calculating the total amount of tax due (Sections 1 and 3).
2. A number of new transaction codes have been added, for example:

• 1 011 215 — sale of digital assets;
• 1 011 720 — provision of electronic services by foreign organisations;
• 1 011 721 — sale of goods, work and services by foreign persons referred to in clause 1 of Article 161 of the Tax Code (i.e., where VAT is calculated by tax agents), and others.

3. The Order also makes changes to the format for the filing of a VAT return in electronic form;
4. These amendments take effect from 23 March 2023 and apply starting with VAT returns filed for the first quarter of 2023.

What do these changes mean for businesses?

The changes to the rules regarding the payment of VAT by tax agents require a review of the current approach to declaring and paying tax in Russia. In particular, companies that act as tax agents will need to align their accounting systems with the new requirements of Russian tax law and consider various procedural aspects of the new mechanism for the payment of VAT by a tax agent to the Russian budget, including matters relating to the "transitional period", which is not specifically provided for in the Law.

How can B1 help?

The B1 team is ready to provide professional services in addressing issues connected with the changes in the way VAT is paid by tax agents. Our services may include:

1. Recommendations on various procedural issues, such as:

• the point at which the tax base should be determined;
• the exchange rate to be used in determining the rouble amount of tax due if payment was made in foreign currency;
• the period in which VAT should be claimed for recovery;
• the documents needed to confirm the calculation of tax by tax agents for VAT recovery purposes;
• the procedure for the payment of VAT in light of the transition to the unified tax account (UTA) system from 1 January 2023;
• transitional issues (for example, if an advance payment to a foreign seller was made before 1 January 2023).

2. Preparing a company’s tax accounting policies (with regard to obligations as a VAT withholding agent) / making amendments to existing tax accounting policies.
3. Analysing contract terms as regards tax agent obligations and amending them as necessary.
4. Liaising with the Federal Tax Service and/or the Ministry of Finance for clarification on the new rules for the collection of VAT by tax agents, including with regard to electronic services as a separate category of issues.