Russia exempts foreign SaaS services from VAT creating reverse charge confusion
The Russian Ministry of Finance has confirmed that online or Software as a Service (Saas) services provided to Russian companies from outside of the country may be Russian VAT exempt.
The new interpretation in based on the current tax code, which makes no mention of such services, and therefore the Ministry believes no VAT is due if the provider has no permanent establishment in Russia. It treats the place of supply as the location of the provider. And therefore no VAT is due. In addition, since the place of supply is not Russia, the reverse charge is not applied whereby the Russian customer must simultaneously apply the input and output VAT on their returns. The Russian company is also not required to withhold VAT on any payments to its foreign customer.
The ruling may present problems of no taxation since, for example, EU providers of SaaS software to Russian countries will treat Russia as the place of supply and expect their customer to be responsible for the VAT.