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New Russian digital law compels companies to open local operations

Russia has enacted a law requiring digital telecommunications companies to open local offices. Under the new law, online networks that have an audience exceeding 500 000 users daily must open a branch in Russia, or establish a Russian subsidiary.

The move is part of a broader Russian effort to create a level playing field for local and foreign digital companies. Russia previously announced plans to remove VAT exemptions on software licences supplied by nonresident businesses. 

Who will be affected by the Russian law?

As the law applies to companies with a relatively large audience, the requirements apply to major internet services. According to news reports, a preliminary list of companies that will need to establish local offices includes social media behemoths such as Facebook and Twitter, online retail platforms like Amazon and AliExpress, and search engines Google and Bing.

Potential VAT benefits

Beyond the expense of opening Russian operations, the law also requires businesses to comply with a raft of bureaucracy. Under the law, internet businesses must also share specified information with Russian authorities. 

However, Russian authorities could also extend the tax benefits that apply to local internet companies to foreign companies that establish a Russian presence.

As noted above, VAT exemptions on software licences now only apply to local firms. In principle, the exemption could extend to foreign companies that comply with the new laws.

Digital businesses that provide services to customers in Russia are advised to pay close attention to regulatory developments. Contact a VAT specialist for up-to-date advice and information. 

Russian digital services VAT

Nonresident companies that supply services online to customers in Russia should also note the country’s digital services VAT

Under the regulations, companies that provide digital services in Russia thus have to register and account for VAT. 

Russia applied its digital VAT relatively early. In the subsequent years, digital services VAT has become increasingly common around the world. 

Optimised VAT compliance, everywhere

As regulations change, your VAT compliance obligations change. No less importantly, new opportunities and incentives may arise, too. 

As global VAT compliance specialists, Vatglobal will ensure that your digital business is fully compliant now – and that you have the resources you need to adapt to the rapidly changing digital VAT environment. We will also work with you to optimise your VAT compliance, and ensure you take advantage of VAT incentives and reclaim opportunities.

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