Russia | The possibility of VAT reimbursement on the sale of intellectual property rights abroad

On July 16, a draft bill was passed to the RF State Duma to implement the order of the President of Russia on changes in taxation in the IT sector, including a number of benefits such as VAT, profit tax, and insurance premiums. On July 22 the law was adopted at the third reading.

The proposed measures include the following:

  • Changing the conditions for VAT exemption for services concerning the provision of rights to use software and databases, inventions, utility models, industrial designs, topology of integrated circuits, and production secrets (know-how)
  • Profit tax at a 3% rate for Russian companies that carry out activities in the field of information technology, develop and implement their software and databases, provide services (perform work) for the development, adaptation, and modification of software and databases, and/or install, test, and support software and databases
  • From 2021, payment of insurance premiums will be at the rate of 7.6 percent for qualifying IT companies.

The law provides the conditions for the application of the above benefits.

Thus, for example, in order to apply the VAT exemption, software and databases must be included in the Unified Register of Russian Computer Programs and Databases. Taxation of the transfer of rights to other software will carry a 20% tax rate. However, the new regulations open up opportunities for the implementation of services for the provision of rights to use software and databases in a tax-free regime in cases where the buyer of services is a foreign company. At the same time, the Russian company gets the right to reimburse the incoming VAT from the budget.

The 3% profit tax will be available to those companies that have special accreditation and  7 or more employees whose income from the sale of software, databases, rights to them, and support services is at least 90%.

The changes will affect both companies working in the IT sector and companies for which granting of rights for software and databases is not the main activity, but they use in some extent the results of intellectual activity in their business.

Contact us to find out about the possible consequences of tax changes and evaluate the possibility of using tax incentives in your company.

Contact us

Dr. Thomas Mundry
Partner, Legal, Tax & Interim Management, Moscow
+7 / 495 / 956 55 57
Ekaterina Lakatosh
Tax Team Leader
+7 / 495 / 956 55 57

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