Value Added Tax (VAT) plays a crucial role in budget revenue generation and economic activity regulation in the Russian Federation and the Republic of Belarus. Over the last few years both countries have taken significant steps towards the harmonization of tax forms within the Union State in order to eliminate barriers to mutual trade and create a common economic space. Given the dynamic changes in legislation and tax administration practices, understanding the current principles and mechanisms of VAT taxation in these countries is becoming particularly important for entrepreneurs and tax professionals.
What is the essence of value added tax?
VAT is a tax that is paid in stages at every stage of sales. When a business sells goods or services, it adds a tax (usually 20%) to the price and charges this amount to the buyer. The business then gives this tax to the government, but can deduct the amount of VAT it has already paid on the purchase of goods and services.
For example, if a store bought goods for 100 rubles (including 20 rubles VAT) and sold them for 200 rubles (including 40 rubles VAT), it will only pay the difference (40 – 20 = 20 rubles) to the budget.
If the goods are imported into the country, VAT must also be paid at customs clearance. But then it can be offset if the company works with VAT.
Some companies, such as residents of the High Technology Park in Belarus, do not pay VAT in certain cases. Exports are also subject to VAT at a 0% rate, but the fact of export must be confirmed.
The point of VAT is that the tax is paid by the end buyer, and the business simply collects it and passes it on to the state.
VAT rates established in Russia and Belarus
Value Added Tax (VAT) is one of the main indirect taxes that form a significant part of budget revenues in both the Russian Federation and the Republic of Belarus. Its application covers the majority of goods, works and services that are sold in the territories of these states.
VAT rates in Russia:
Standard rate: 20%.
Preferential rates:
- 10%: applies to certain types of goods and services, including foodstuffs, children’s goods, periodicals and medical devices.
- 0%: exported goods and certain international transportation services.
VAT rates in Belarus:
Standard rate: 20%.
Preferential rates:
- 10%: applies to socially important goods such as basic foodstuffs and children’s goods.
- 0%: export operations and some other categories.
For 2022 turnovers it is possible to apply a VAT rate of 26%, in some cases a rate of 25% (for data services).
“Import” VAT
When importing goods into Russian or Belorussian territory, the so-called “import” VAT is paid. This tax is levied on imported goods upon their crossing the customs border. “Import” VAT is calculated on the basis of the customs value of the goods, which is increased by the amount of customs duties and excise taxes (if applicable). “Import” VAT ensures equal taxation conditions for domestic and imported goods.
Belarus provides for certain exemptions from “import” VAT. According to the Decree of the President of the Republic of Belarus No. 77 of March 4, 2024, imported technological equipment, the analogues of which are not produced in the country, as well as relevant components and spare parts, are exempt from VAT. In order to apply this benefit, it is necessary to provide a conclusion of the authorized body that there are no domestic analogues and meet a number of established conditions.
Specifics of VAT payment by residents of the High Technology Park in Belarus
Residents of the High Technology Park (HTP) in Belarus enjoy special tax preferences, including VAT exemption for certain types of operations. In particular, they do not pay VAT on the sale of goods (works, services) in Belarus, except for transactions directly specified in the legislation, such as leasing or alienation of property.
HTP residents are exempt from VAT on the purchase of certain services from foreign companies that do not have representative offices in Belarus. This applies, for example, to data processing services, web hosting, provision of advertising space on the Internet and some others. However, when purchasing similar services from foreign individuals or individual entrepreneurs, such exemption does not apply, and VAT must be paid at the standard rate of 20%.
It is important to note that tax exemptions granted by the state to HTP residents do not apply to their business partners who purchase goods or services from HTP residents. That is, if an organization that is not an HTP resident purchases products from an HTP resident, it is obliged to pay VAT under the general procedure.
Understanding the specifics of VAT taxation in Russia and Belarus, as well as the peculiarities related to “import” VAT and tax preferences for HTP residents, is key for efficient business and tax compliance in these countries.
How VAT is calculated: examples
VAT is calculated simply:
Example 1. Sales of goods and services
Take the price of the goods (without VAT).
Multiply by the tax rate (usually 20%).
The total amount is the VAT that is added to the price:
If the goods cost 100 rubles without VAT, the tax:
100 × 20% = 20 rubles.
The buyer will pay 120 rubles (100 + 20).
Example 2. Purchase of goods and services
Invoices from suppliers already include VAT.
This VAT can be offset and reduce your tax payable:
Take VAT from all sales.
Subtract VAT from all purchases.
Pay the difference to the budget:
Example 3. Import VAT
When importing goods into the country, VAT is calculated as follows:
(price of goods + duties) × 20%.
This tax is paid at customs clearance, but it can be offset later.
Benefits
Some companies, such as HTP residents in Belarus, may not pay VAT in certain cases.
A 0% rate applies to exports, but it is necessary to confirm the fact of export.
The main rule is that if a company pays VAT on purchases, it can offset it and reduce the tax. If it does not pay it (for example, it has a privilege), it cannot offset anything.
Integrated Indirect Tax Administration System (IITAS)
ISA IP is a joint project of Russia and Belarus aimed at improving the control and management of value added taxes (VAT) and excise taxes between the two countries.
Principles of operation and objectives of the system
The IITAS is designed for the automated exchange of information on taxpayers and their transactions related to indirect taxes. The main objectives of the system include:
Harmonization of tax administration: ensuring common standards and approaches to VAT and excise tax collection in both countries.
Elimination of tax barriers: creating favorable conditions for mutual trade and economic cooperation between Russia and Belarus.
Formation of a common information space: ensuring transparency and timeliness of data exchange between the tax authorities of the two countries.
Countering tax evasion: identifying and preventing indirect tax evasion schemes in cross-border trade.
The system consists of three main components:
1. Analytical segment of the ITAS: designed to analyze and process data received from the national segments.
2. National segment of the Republic of Belarus: provides collection and transmission of information from Belarusian taxpayers.
3. National segment of the Russian Federation: performs similar functions for Russian taxpayers.
Initial implementation results and development prospects
IITAS was put into commercial operation on January 31, 2023. During the first year of operation, the system showed the following results:
Additional budget revenues: in 2023, thanks to the work of the ISA KN, several tens of millions of rubles were additionally collected to the Belarussian budget.
Improvement of tax administration: the system allowed automating the processes of control over the payment of VAT and excise duties, reducing the administrative burden on bona fide taxpayers and increasing the efficiency of detection of violations.
Convergence of tax systems: IITAS facilitates the unification of tax legislation and administration, which is an important step towards the creation of a common economic space between Russia and Belarus.
Prospects for the development of the system
Prospects for the development of the IITAS of the tax authorities include the following areas:
Expansion of functionality: adding new capabilities for deeper data analysis and improved interaction between tax authorities.
Deepening integration: further convergence of the tax systems of the two countries, including harmonization of tax rates, benefits and exemptions.
Increased transparency: creating conditions for a more open and understandable tax administration, which contributes to increased business confidence and an improved investment climate.
Overall, IITAS represents an important tool in the development of economic integration between Russia and Belarus, contributing to the creation of a level playing field for business entities and strengthening fiscal discipline in both countries.
Practical aspects for taxpayers
The harmonization of tax administration between Russia and Belarus, particularly in the area of value added tax (VAT), entails a number of changes and innovations that have a direct impact on the activities of taxpayers in both countries.
Changes in VAT payment and administration procedures in Russia and Belarus
The following key changes have taken place with the introduction of the IITAS:
Established unified minimum rates of VAT and excise duties.
Simplified procedures for confirming the zero rate of VAT on exports: Harmonization of procedures and elimination of existing problems with the confirmation of the zero rate and VAT refund on exports to the Eurasian Economic Union (EAEU) countries helps to reduce the administrative burden on exporters.
Advantages and challenges for business in a harmonized tax space
Benefits:
Reduced administrative costs:
- Unification of tax procedures and reporting formats allows businesses to reduce time and resources to meet tax obligations.
Transparency and predictability of tax policy:
- Harmonization of tax laws contributes to a stable and predictable tax environment, which is important for long-term planning and investment.
Facilitation of cross-border trade:
- Harmonized VAT payment and refund procedures make it easier to do business between Russia and Belarus, contributing to the growth of mutual trade.
Challenges:
Adapting to new requirements:
- Businesses need to restructure internal processes and train staff to comply with new tax administration standards.
Technical integration:
- Implementation and use of new information systems requires investment in IT infrastructure and may be accompanied by technical difficulties.
The need for constant monitoring of changes:
- In the context of dynamic development of integration processes, it is important for businesses to timely monitor changes in tax legislation and adapt to them.
In general, the harmonization of tax administration between Russia and Belarus is aimed at creating more favorable conditions for business, but requires from enterprises a careful approach to the introduction of new procedures and readiness to adapt to the changing tax environment.
Conclusion
Harmonization of VAT taxation between Russia and Belarus is an important step in the development of economic cooperation between the two countries. The introduction of the Integrated Indirect Tax Administration System (IITAS) has already yielded the first results: tax procedures have been simplified, transparency of calculations has increased, and opportunities for tax evasion have decreased.
For business, these changes bring both advantages and challenges. On the one hand, the unification of tax rules and automation of processes reduces the administrative burden, makes doing business more predictable, and reduces tax accounting costs. On the other hand, companies have to adapt to new requirements, master updated reporting systems and keep up with constant changes in legislation.
One of the key achievements is the simplification of confirmation of the zero VAT rate for exports, which reduces financial and time costs for exporters. The system also makes it possible to more effectively detect and prevent tax violations, increasing the overall level of tax discipline.
Prospects for further development of tax integration are related to the expansion of the functionality of the IITAS, deepening the unification of tax rates and procedures, as well as the possible expansion of the system to other EAEU countries. All this contributes to the formation of a common economic space, where business will be able to operate in a more comfortable and understandable environment.
Thus, the VAT procedure between Russia and Belarus is not just a technical change, but a significant step towards simplifying business, enhancing tax transparency and developing economic ties between the countries. However, in order to utilize all the opportunities of the new system, it is important for taxpayers to carefully study the changes and adapt to the new working conditions.
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