Tax free law introduced in Russia

By Elena Rybnikova, Head of Internal Audit, Expertise and Methodology Department

A tax free law was introduced in Russia on April 10, 2018 by passing Federal Law No. 341-FZ Amending Article 88 Part 1 and Chapter 21 Part 2 of the Russian Tax Code.

Elena Rybnikova
Head of Internal Audit, Expertise and Methodology Department

Russian VAT refund is relevant not only for foreign tourists traveling to Russia, but also for local retailers. More than 10 retail locations in four territorial entities of the Russian Federation are currently included in the system, and tax free stores are found in Moscow, the Moscow region, St. Petersburg, Sochi and airports. The list of pilot locations will be significantly extended shortly to include the cities hosting FIFA World Cup 2018, and the tax free system is expected to be launched throughout the country by the end of 2018. 

Companies taking part in the tax free system

The new law provides that it is necessary to apply for the status of “retail trade organization” to participate in the tax free system. To obtain this status, organizations must meet the following mandatory conditions simultaneously:

  1. Engage in retail trade activity;
  2. Pay VAT;
  3. Вe included in a special register maintained by the Russian Ministry of Industry and Trade by submitting the required application.

Retail outlets must also be located in a strictly designated place and meet certain criteria. Cash registers must be modernized to meet the new rules set out in Article 2(2) of Federal Law No. 54-FZ, or organizations should switch to new online cash register so that issued receipts meet the requirements of the law. 

Companies will be able to apply for VAT deduction under the tax free system after they receive confirmation from customs authorities that the goods purchased by foreign nationals have been exported outside the Russian Federation. VAT will then be deducted within a year of the date of compensation to foreign nationals so the maximum refund period will be 2 years: a year in case of transfer of money to foreign nationals and another year for VAT deduction.

Tax invoices under the new tax free system are issued in compliance with the rules for keeping purchase and sales ledgers as amended by Government Decree No. 98 dated February 01, 2018. Stores and tax free operators are to submit details to tax authorities.

Individuals, nationals of countries not members of the Eurasian Economic Community (Armenia, Belarus, Kazakhstan, Kyrgyzstan)

Upon export of purchased goods worth at least RUB 10,000 including VAT, it is possible to apply for tax free at customs and get a refund of the VAT amount paid by presenting to a tax free operator the relevant receipts and goods. However, it will not be possible to refund everything at once. VAT will be refunded after deduction of the cost of the service provided for compensation of this tax, and tax on excisable goods will not be refunded at all. Tax is refunded in cash straight away, while it will be necessary to wait for up to one year for any refund to bank cards.