Since January 1, 2019, the VAT rate in Russia has increased pursuant to the Federal Law No 303-FZ “On the Amendment of Separate Legislative Acts of the Russian Federation of Taxes and Duties,” dated August 3, 2018. The general VAT rate has increased from 18% to 20%. The special tax rate has also increased to 16.67%.
The VAT rate of 20% applies to any delivery of goods, works or services made from January 1, 2019. Neither the signing date of an agreement nor the conditions of its execution matter for this general rule. For example, if an existing agreement provides for the VAT of 18%, from January 1, 2019, the VAT of 20% applies instead. We recommend that existing agreements be amended to provide for the new VAT rate.
If an agreement only provides for the price without specifying the VAT rate or amount and this transaction is subject to VAT, VAT is deemed to be included in the price. Therefore, from January 1, 2019, the VAT will be charged at the rate of 20% and, as a result, the price amount due to the taxpayer will be lower.
Where in 2018 an advance payment was made for the goods, works or services to be provided/delivered after January 1, 2019, the 2018 advance payment, whether total or partial, will be subject to the VAT rate of 18/118%. The seller shall deduct the VAT at the rate of 18/118% and then calculate it as 20% in 2019. In turn, the buyer shall restore the VAT paid at 18/118% with the advance payment and may deduct the VAT at the rate of 20%.
Importantly, even if bearing in mind the VAT increase the buyer paid additional 2% of VAT to the seller in 2018, such payment shall not be deemed a VAT payment but a part of the price.