Russian standard VAT rate will be increased as of 1 January 2019
On 14 June 2018, the Russian government announced a proposed legislation update for an increase of the current standard VAT rate from 18% to 20%.
22 June 2018
On 14 June 2018, the Russian government announced a proposed legislation update for an increase of the current standard VAT rate from 18% to 20%. Once the draft law is adopted by the Russian Parliament and signed by the President, which is likely to be a mere formality, the new VAT rate will be applied from 1 January 2019.
For B2C and B2B e-services, the VAT rate will be increased from 15.25% to 16.67% of the VAT inclusive value.
The reduced VAT rate of 10% (basic foodstuffs, medicines, children's products and books/newspapers) will not be amended.
No transitional provisions yet
Transitional provisions are generally provided for when VAT rates are changed. So far, it is still uncertain whether any transitional provision will be published relating to the increase of the standard VAT rate in Russia.
Some practical implications
If a company cannot deduct VAT for some reason (banks, insurance companies, whose revenue is exempt from VAT, etc.), it is more profitable for them to bear 18% of input or import VAT before the end of the year, rather than 20% in 2019.
For exporters who keep separate accounting, a cash flow disadvantage exists due to a postponed deduction of input VAT (20% instead of 18%).
The VAT rate increase has many relevant practical consequences VAT entrepreneurs may need to consider. Below are some examples:
- Adjustments to ERP system
- Price adjustments
- Taking account of the rate increase in proposals for supplies to be rendered in 2019 or later.