Brief Consultation for Foreign Organizations: Rendering services by the foreigners within the territory of the Russian Federation

 

Under the Article 57 of the Constitution of the Russian Federation everyone shall pay taxes and duties set up by the federal laws of the Russian Federation.

 

The Article 4 of the Constitution of the Russian Federation set up supremacy of  the Constitution of the Russian Federation and federal laws throughout the entire territory of the Russian Federation.

 

According to the part 1 of the Article 1 of the Tax Code of the Russian Federation (Federal Law of the Russian Federation № 146-FZ, dated 31.07.1998) the legislation on tax and duties of the Russian Federation consists of the present Code and the federal laws set up in conformity with the Code.

 

The Article 13 defines the value-added tax (VAT) as a federal one. Under the provision of the part 2 of the Article 12 (Types of the taxes and duties in the Russian Federation) federal tax means the tax expressed by the present Code and is compulsory to be paid within the territory of the Russian Federation.

 

VAT is set by the Chapter 21 (The Value-Added Tax) of the Tax Code of the Russian Federation.

 

The Article 143 of the Tax Code of the Russian Federation (The Taxpayers) states that organizations, individual entrepreneurs, persons recognized as taxpayers of the value added tax (further in the present Chapter - tax) in connection with the movement of goods across the customs border of the Russian Federation defined according to the Customs Code of the Russian Federation, recognized as taxpayers for the purposes of value added tax (hereinafter referred to as “taxpayers”).

 

According to the part 2 of the Article 11 of the Tax Code of the Russian Federation (The Terms and Expressions) term “organizations” means legal entities established under the legislation of the Russian Federation (hereinafter referred to as “Russian organizations”), and also foreign legal entities, companies and other enterprises legally capable and established under the legislation of the foreign countries, international organizations, their branches and permanent establishments established within the territory of the Russian Federation (hereinafter referred to as “foreign organizations”).

 

It is stated in the part 1 of the Article 146 of the Tax Code of the Russian Federation (The Object of Taxation) that sale of goods (performance of works, rendering of services) within the territory of the Russian Federation, including the sale of subjects of a pledge and transfer of goods (results of performed works, rendered services) under a compensation agreement or a novation (substituted agreement), as well as the transfer of property rights is an object of taxation.

 

Under the part 1 of the Article 148 of the Tax Code of the Russian Federation (The Place of Works Performed or Services Rendered) for the purposes of the present Chapter the territory of the Russian Federation shall be recognized as the place of works performed or services rendered if rendering consulting, legal, accounting, engineering, advertising, education services, services in the processing of information, and also in the performance of research and development works. Engineering services shall include engineering and consulting services in the development of a production process and sale of products (works, services), preparation of civil engineering and operation of facilities in industry, infrastructure, agricultural and other objects, pre-design and design services (drafting of feasibility studies, the design engineering and other similar services). Services in the processing of information shall include services in the collection, generalization and systematization of information files and furnishing the user with results of this information processing.

 

The part 4 of the Article 148 of the Tax Code of the Russian Federation defines the following documents as the legal evidence that can confirm the place of works performed or services rendered:

1. A contract with foreign or Russian persons;

2. Documents confirming the fact of performance of works or rendering of services.

 

According to the part 1 of the Article 161 of the Tax Code of the Russian Federation in case of sale of goods (performance of works, rendering of services) which place of sale (performance or rendering) is the territory of the Russian Federation, for foreign persons being taxpayers which have not registered with the tax authorities as the taxpayers, the tax base shall be defined as the sum of income from sale of these goods (works, services) taking into account the tax.

The tax base shall be defined separately in case of performance of each operation of sale of goods (performance of works, rendering of services) within the territory of the Russian Federation taking into account the Chapter 21.

 

The provision of the part 2 of the Article 161 of the Tax Code of the Russian Federation provides that the tax base specified in the part 1 of the Article 161 of the Tax Code of the Russian Federation shall be defined by tax agents. In so doing, the tax agents shall be recognized as organizations and individual entrepreneurs registered with the tax authorities, which purchase within the territory of the Russian Federation of goods (works, services) from the foreign persons indicated in the part 1 of the Article 161 of the Tax Code of the Russian Federation. The tax agents are to compute, withhold from the taxpayer, and pay to the budget the relevant amount of tax regardless of whether they have obligations of the taxpayer associated with the calculation and payment of tax and also other obligations established by the Chapter 21.

 

Under the part 3 of the Article 164 of the Tax Code of the Russian Federation sale of goods, performance of works and rendering of services are taxable at the 18 per cent tax rate (Amended by the Federal Law № 117-FZ, dated 07.07.2003).

 

The provision of the paragraph 2 of the part 4 of the Article 174 of the Tax Code of the Russian Federation prescribes in case of sale of goods (performance of works, rendering of services) which place of sale (performance or rendering) is the territory of the Russian Federation, for foreign persons being taxpayers which have not registered with the tax authorities as the taxpayers, tax (VAT) is paid by tax agents at the same time of transfer of the money for the goods sold, works performed, services rendered in favor of such taxpayers (Amended by the Federal Law № 163-FZ, dated 08.12.2003).

 

 

November, 2004