Tax Free in Russia

The President has signed the law introducing the tax free system in Russia starting 1 January 2018. As a result retailers and producers of consumer goods (excluding excisable goods) may introduce the tax free system in their shops under certain conditions. In such cases customers from countries outside the Eurasian Economic Union will be eligible to claim back VAT incurred on purchases in such shops. Please refer to the attached leaflet for more details.

 

Certain regulations are still pending and to be established by the Government, the Ministry of Industry and Trade, the Federal Customs Service and the Federal Tax Service (including requirements to retailers eligible to apply the tax free system, a list of addresses where the tax free system can be applied, a list of restricted goods, procedures and formats of documents). We will share more details about the tax free system as soon as the regulations will be adopted

Starting 2018 tax-free system will be introduced in Russia. This will allow foreign citizens from non-Eurasian Economic Union countries (hereinafter – foreign buyers) to reimburse VAT paid upon purchase of goods from retailers (hereunder – stores)

in Russia (under certain conditions). Reimbursement can be obtained in two ways:

• through an operator, who will deal with the store and transfer the VAT amount to a foreign buyer (hereinafter – Operator);

• directly through the store.

How tax-free works : 

1. Foreign buyer is eligible to reimburse VAT paid upon purchase of goods in the amount exceeding 10 000 rubles per day if certain conditions are met.

Store issues a special check for VAT reimbursement (hereinafter – check) to the foreign buyer.

2. Store transfers the information about the issued checks to the Federal Customs Service (hereinafter – FCS).

3. Foreign buyer gets a customs stamp on the check confirming that the purchased goods are exported outside the EEU.

4. Foreign buyer provides the checks to get the VAT back.

5. Operator (store) reimburses VAT to the foreign buyer reduced by the fee for VAT reimbursement services.

The service fee is subject to a zero VAT rate.

6. FCS transfers the information about the checks and the customs stamps on such checks to the Federal Tax Service (hereinafter – FTS).

7. Store recovers VAT paid to the foreign buyer. VAT can be recovered within 1 year from the date of payment of VAT to the foreign buyer. 

Application of a zero VAT rate and the VAT recovery should be justified by submission of a register of checks (list of checks during the transition period – until

1 October 2018) to the tax authorities.

What are the advantages?

• More competitive prices for the foreign buyers.

• Growth of demand from the foreign buyers and sales revenue.

• Contribution to the store’s reputation (esp., in tourist regions).

What issues and difficulties may arise?

• How to structure relationships between parties and set up business processes?

• What are the requirements for the parties and what documents are needed?

• What are the costs and how they should be justified?

• How to ensure the full recovery of VAT paid to the foreign buyer?

20171201_Tax Free Eng.pdf