VAT Registration for Foreign Digital Service

Russia was among the first countries in the world to impose VAT on foreign providers of digital and electronic services — initially for B2C transactions from January 2017, and subsequently extended to B2B from January 2019. The regime has since been refined several times, most recently with changes to registration triggers in 2024 and the rate increase to 22% from January 2026.

For international businesses providing digital services with Russian customers — whether SaaS platforms, streaming services, marketplaces, data providers or any other form of digital service — understanding and complying with these obligations is no longer optional. The Russian Federal Tax Service (FTS) has become increasingly active in identifying and pursuing non-compliant foreign providers.

Russian tax law (Article 174.2 of the Tax Code) defines electronic services broadly. The key characteristic is that the service is delivered automatically over the internet, without significant human involvement in the delivery process.

The following are specifically excluded from the electronic services definition and are subject to standard place-of-supply rules:

One of the most common issues for multinational groups is the treatment of intercompany charges for digital services — licences for internal software platforms, shared IT infrastructure, data services, SaaS tools charged by a foreign parent to a Russian subsidiary. These fall squarely within the Russian VAT regime for electronic services. Many groups have historically used the reverse charge approach even after it was abolished in 2019. This is no longer permitted.

There is no registration threshold for foreign providers of electronic services in Russia. Registration is required from the first taxable supply — regardless of volume, value or frequency.

Foreign providers selling digital services to Russian individuals (consumers) have been required to register since January 2017. Under amendments effective from 1 April 2024 (Federal Law No. 389-FZ of 31 July 2023), the registration trigger was refined: registration is now specifically required where the foreign company provides electronic services to Russian individuals and makes settlements directly with those individuals.

This change was intended to clarify the position where payments are collected by intermediaries — in such cases, the obligation may shift. However, any foreign provider collecting payments directly from Russian consumers must register, regardless of the payment method used.

From 1 January 2019, foreign providers of electronic services to Russian VAT-registered businesses are also required to register and account for Russian VAT. Russia is unusual — and notably different from EU rules — in not applying a reverse charge mechanism for B2B digital services. The foreign provider, not the Russian customer, is responsible for Russian VAT.

However, there is an important practical exception: the foreign provider and the Russian customer may agree that the Russian customer will act as a tax agent and withhold and remit the VAT on behalf of the foreign provider. In this case, the foreign provider does not need to register — but must ensure the agreement is in place and properly documented.

The tax agent arrangement is widely used in practice, particularly for intercompany transactions within multinational groups. However, it requires a specific contractual arrangement and the Russian customer must be a VAT payer itself. If the Russian customer is not a VAT payer (e.g. uses a special tax regime), the arrangement cannot be used and the foreign provider must register.

Russian VAT applies where the electronic service is considered to be supplied in Russia. The place of supply is determined by reference to the customer's location, established using the following indicators:

For B2B, the customer is considered to be in Russia if it is registered as a legal entity or sole trader in Russia. State registration is the primary and sufficient indicator.

The calculated rate (расчётная ставка) is used when VAT is considered to be included in the price already — i.e. when the contract price is VAT-inclusive. For digital services sold to Russian customers, the calculated rate was 16.67% (= 20/120) under the old rate and is 18.03% (= 22/122) under the new rate.

Foreign providers who have not updated their pricing or contractual arrangements to reflect the rate increase to 22% from 1 January 2026 may be undercharging VAT — and remain liable for the shortfall to the Russian FTS. Contracts that specify a price "inclusive of VAT at 22%" require review. Service agreements with Russian subsidiaries or customers should be updated to reflect the new rate.

Foreign providers register with the Russian Federal Tax Service through a dedicated online registration portal for foreign organisations (Личный кабинет иностранной организации). The process is conducted entirely online — there is no requirement to attend a Russian tax office in person or to appoint a local representative for the registration itself.