1 / 22

Practical Implications for Businesses in Russia of Forthcoming Changes to the VAT Legislation

Practical Implications for Businesses in Russia of Forthcoming Changes to the VAT Legislation. Annual Tax Seminar American Chamber of Commerce Paul Tobin Director Indirect Tax Group PricewaterhouseCoopers Moscow 23 September 2005. Output VAT – general rules (article #167).

kimball
Télécharger la présentation

Practical Implications for Businesses in Russia of Forthcoming Changes to the VAT Legislation

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Practical Implications for Businesses in Russia of Forthcoming Changes to the VAT Legislation Annual Tax Seminar American Chamber of Commerce Paul Tobin Director Indirect Tax Group PricewaterhouseCoopers Moscow 23 September 2005

  2. Output VAT – general rules (article #167) • From 1 January 2006: • Only the accrual method of revenue recognition allowed • Advance payments are still subject to VAT (excluding export advances)

  3. Input VAT recovery (article #171, 172) • No payment to supplier is required • Recovery of import VAT - still upon payment to customs authorities • Reverse charge VAT - no significant changes

  4. Input VAT on capital construction (article #172) • Input VAT on capital construction is recoverable under the general rules (not upon completion of construction) • Implications

  5. Transition rules • Output VAT – for taxpayers on cash method in 2005: • Up to 1 January 2008 Output VAT on supplies made prior to 2006 and not paid for as of 31 December 2005 is payable upon receipt of payment. • From 1 January 2008 VAT on the balance of unpaid supplies is payable in the first tax period of 2008. • Input VAT not related to capital construction: - For taxpayers on accrual method in 2005, input VAT not recovered before 1 December 2005 is recoverable over the first six months of 2006 in equal amounts. - For taxpayers on cash method in 2005, input VAT not recovered as of 31 December 2005 is recoverable upon payment to suppliers.

  6. Transition rules • Input VAT on capital construction: • Recovery of input VAT incurred prior to 2005 upon completion of construction; • Input VAT incurred during 2005 is recoverable throughout 2006 in equal amounts, but not later than completion of construction • Implementation of transition rules: • Determining the year end balances • Input VAT recovery/revenue recognition in 2006 – separate rules for VAT “originating” from previous years • Separate accounting

  7. Place of supply rules (article #148) • List of services related to movable property • Place of supply rules for services related to aircraft, marine vessels and inland vessels made similar to place of supply rules for movable property • Services in the area of education (training) performed in Russia are VATable

  8. Place of supply rules (article #148) • List of services regarded supplied at “the place of buyer activity”: • Marketing services • Software and database development • “Transfer and provision” of licenses versus “transfer of title of or assignment of” licenses • New provisions for transportation services: • Transportation services provided by a foreign legal entity is non-VATable • Contradictory provisions • Transportation by a Russian legal entity between two points abroad is non-VATable • Implications: • Review of inbound/outbound services • Lease of ground vehicle transportation • Bareboat charter • Transportation etc.

  9. VAT reporting by foreign legal entities (article #144) • VAT calculation and payment on a consolidated basis • From 1 January 2006: • Consolidated filing is permitted • Choice of one branch/subdivision for reporting • Written notification of the tax authorities • Implications

  10. Zero VAT rate (article #164) • Export advances are not subject to VAT • Zero rate for processing goods placed under the processing customs regime: • Buy-sell arrangements are not covered • Zero rate for cross-border transportation: • Submission of customs declaration is not required – now means zero rate for transportation of imported goods in practice as well as in theory • No requirement to be a “carrier” • Zero rate for arranging transportation

  11. Zero VAT rate (article #165)VAT offset/refund (article #176) • No separate VAT returns for export and domestic sales – comes into force on 1 January 2007 • From 1 January 2007: • Refundable VAT can be offset against future VAT obligations upon document audit by the tax authorities • Term of audit – 2 months • Implications

  12. VAT withholding obligations (article #161) • No changes in timing of withholding and recovery, with one exception (below) • New type of tax withholding agents – commercial agents which sell goods on behalf of foreign principal • VAT is paid to the budget upon dispatch • Input VAT on goods sold by the agent is not recoverable • VAT invoices

  13. VAT treatment of charter contribution (article #171) • Contributing party – reversal of input VAT on contribution • Receiving entity – recovery of the reversed input VAT for VAT-able operations • Possible technical problems for recovery by the receiving entity

  14. VAT on distribution of advertising materials (article #149) • Distribution of items costing below 100 RR each is exempt • Input VAT • Implications: • How to determine cost per item? • What constitutes an “item”? • Input VAT recovery based on the 5% minimum limit • How to gather the relevant information? • Risk for prior periods

  15. Transfer of property rights (article #155) • Output VAT: • Provisions on determining the tax base are introduced for: • Transfers of accounts receivable • Transfer of rights related to leases • Other types of property rights? • Input VAT: • Input VAT is recoverable based on the general rules

  16. Input VAT recovery for non-cash settlements (article #168, 172) • From 1 January 2007 • New provision of Article 168 may be interpreted as prohibiting recovery of input VAT paid by non-cash funds • From 1 January 2006 • Only PAID input VAT is recoverable on payment with own property (e.g., promissory notes) • Implications

  17. Input VAT on assets used for non-VAT-able activities (article #170, 171) • Significant changes • Rules for reversal of input VAT on assets transferred to non-VAT-able use • Period of reversal – 15/10 years • Type of assets • Application of the rules is unclear

  18. VAT related to self-construction (article #167, 172) • VAT is charged monthly – not on completion of construction works • Self-charged VAT is recoverable after payment to the budget

  19. VAT issues in respect of reorganization (article #162.1) • Retrospectively from 1 January 2005: • Most of the VAT risks eliminated • No reversal of input VAT on transferred assets • No VAT on transfer of property rights • “New” entity may recover input VAT of the “old” entity

  20. What is next? • Clarifications or new amendments?

  21. Practical impact on businesses • Prepare for general changes (e.g. VAT on accrual method) • Manage the transition issues • Conduct detailed review of the changes specific to your business • Monitor developments

  22. CONTACT DETAILS • For further details contact: Paul Tobin Director Indirect Taxes PricewaterhouseCoopers Telephone: (7) 095 967 6228 E-mail: paul.tobin@ru.pwc.com

More Related