Value-Added Tax (VAT) plays a key role in generating budget revenues and regulating economic activity in both the Russian Federation and the Republic of Belarus. In recent years, both countries have taken significant steps to harmonize tax rules within the framework of the Union State, aiming to remove barriers in mutual trade and create a single economic space. Understanding the current principles and mechanisms of VAT in these countries is especially important for entrepreneurs and tax professionals, given the dynamic changes in legislation and tax administration practices.
What is Value-Added Tax (VAT)?
VAT is a tax paid at each stage of sales. When a business sells a product or service, it adds tax to the price (usually 20%) and collects this amount from the buyer. Then the business transfers this tax to the government, but can deduct the VAT already paid on purchased goods and services.
For example, if a store buys a product for 100 rubles (including 20 rubles of VAT) and sells it for 200 rubles (including 40 rubles of VAT), it will pay only the difference to the budget: 40 – 20 = 20 rubles.
If goods are imported into the country, VAT must also be paid during customs clearance. However, it can then be deducted if the company is VAT-registered.
Some companies, such as residents of the High-Tech Park (HTP) in Belarus, do not pay VAT in certain cases. Exports are also taxed at 0%, but the fact of export must be confirmed.
The essence of VAT is that the final consumer pays the tax, while the business merely collects it and transfers it to the government.
VAT Rates in Russia and Belarus
VAT is one of the main indirect taxes, forming a significant part of budget revenues in both Russia and Belarus. It applies to most goods, works, and services sold in these countries.
VAT rates in Russia:
- Standard rate: 20%
- Reduced rate: 10%, applied to certain goods and services (e.g., food, medical products, children’s goods)
- 0% rate: includes exports and some international services
Proposed change: The Russian government is considering raising the standard VAT rate to 22% from 2026.
VAT rates in Belarus:
1. Standard rate: 20%
2. Reduced rates:
- 10%: applies to socially significant goods, such as staple foods and children’s products
- 0%: export operations and certain other categories
For turnover in 2022, VAT rates of 26% or 25% (for data transmission services) may apply in certain cases.
Import VAT (“Input VAT”)
When goods are imported into Russia or Belarus, so-called “import” VAT must be paid. This tax is levied at the moment goods cross the customs border. Import VAT is calculated based on the customs value of the goods, increased by any customs duties and excises (if applicable). Import VAT ensures equal tax treatment for domestic and imported goods.
Belarus provides certain exemptions for import VAT. According to Presidential Decree No. 77 of March 4, 2024, imported technological equipment without domestic equivalents, as well as related components and spare parts, are exempt from VAT. To apply this exemption, a conclusion from the authorized body confirming the absence of domestic equivalents and compliance with established conditions is required.
VAT for High-Tech Park (HTP) Residents in Belarus
Residents of the High-Tech Park (HTP) in Belarus enjoy special tax benefits, including exemption from VAT for certain activities. In particular, they do not pay VAT when selling goods (works, services) within Belarus, except for operations specifically mentioned in legislation, such as leasing or selling property.
When purchasing certain services from foreign companies without a presence in Belarus, HTP residents are exempt from VAT. This includes services such as data processing, web hosting, internet advertising, and some others. However, for similar services purchased from foreign individuals or sole proprietors, the exemption does not apply, and VAT must be paid at the standard rate of 20%.
It is important to note that tax benefits granted 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 buys products from an HTP resident, it must pay VAT according to standard rules.
Understanding VAT specifics in Russia and Belarus, including import VAT and HTP-related tax benefits, is crucial for effective business operations and tax compliance in these countries.
How VAT is Calculated: Examples
Example 1: Selling Goods and Services
Take the price of the product (excluding VAT).
Multiply by the tax rate (usually 20%).
The result is the VAT to be added to the price:
- If the product costs 100 rubles without VAT, VAT = 100 × 20% = 20 rubles
- The buyer pays 120 rubles (100 + 20)
Example 2: Purchasing Goods and Services
Invoices from suppliers already include VAT.
This VAT can be deducted to reduce the tax payable:
- Take VAT on all sales
- Subtract VAT on all purchases
- Pay the difference to the budget
Example 3: Import VAT
For imported goods, VAT = (goods value + duties) × 20%.
This tax is paid during customs clearance but can be later deducted.
Exemptions
Some companies, such as HTP residents, may not pay VAT in specific cases.
Exports are taxed at 0%, but exports must be documented.
Key rule: if a company pays VAT on purchases, it can deduct it. If it doesn’t pay (e.g., due to an exemption), nothing can be deducted.
Integrated System for Indirect Tax Administration (ISA IT) between Russia and Belarus
The ISA IT is a software complex designed to automatically reconcile information about purchases and sales made by taxpayers in both countries with VAT declarations. Its goal is to identify discrepancies, track transaction chains, and detect potential VAT evasion schemes in cross-border trade.
System components:
- Analytical segment: processes data received through national segments from related information systems
- Belarus national segment: integrates with Belarusian systems
- Russia national segment: performs similar functions for Russian taxpayers
Implementation and operation:
ISA IT was launched on January 31, 2023. The system operates on servers located in each country. Interaction between national segments occurs electronically through secure channels using cryptographic protection.
Results:
In the first year, several tens of millions of rubles were additionally collected for the Belarusian budget, demonstrating increased efficiency in VAT and excise control while reducing administrative burden on compliant taxpayers.
Future prospects:
ISA IT development includes expanding system functionality, deeper integration of tax systems, and increased business transparency. Since November 2023, a Supra-national Tax Committee has been operating within the Union State, led by a Belarusian representative, monitoring timely and complete data transmission and preparing proposals to harmonize Belarusian and Russian tax laws.
Practical Aspects for Taxpayers
Harmonization of tax administration between Russia and Belarus, particularly for VAT, entails several changes directly affecting taxpayers in both countries.
Changes in VAT payment and administration:
With ISA IT implementation:
- Minimum VAT and excise rates have been standardized
- Export 0% VAT confirmation procedures have been simplified, reducing administrative burden for exporters in the Eurasian Economic Union (EAEU)
Benefits and challenges for businesses:
Benefits:
- Reduced administrative costs: unified procedures and reporting formats save time and resources
- Transparency and predictability: harmonization creates a stable tax environment, aiding long-term planning and investment
- Simplified cross-border trade: aligned VAT procedures facilitate business between Russia and Belarus, boosting mutual trade
Challenges:
- Adapting to new requirements: businesses must reorganize internal processes and train staff
- Technical integration: new IT systems require investment and may face technical issues
- Continuous monitoring: businesses need to track legislation changes and adapt quickly
Overall, harmonization aims to create favorable business conditions but requires careful adaptation to new procedures.
Conclusion
VAT harmonization between Russia and Belarus is a significant step in economic cooperation. The ISA IT system has already simplified tax procedures, increased transparency, and reduced opportunities for tax evasion.
For businesses, these changes bring both benefits and challenges. Unified rules and automated processes reduce administrative burden, increase predictability, and lower accounting costs. However, companies must adapt to new requirements, master updated reporting systems, and monitor ongoing legal changes.
Key achievements include simplified confirmation of 0% VAT on exports, reducing costs for exporters, and more effective detection of tax violations, raising overall tax discipline.
Future prospects involve expanding ISA IT functionality, further unifying VAT rates and procedures, and potentially extending the system to other EAEU countries. This contributes to creating a single economic space with clearer and more comfortable conditions for business.
Thus, VAT taxation rules between Russia and Belarus are not merely technical changes but a significant step toward simplified business, increased tax transparency, and stronger economic ties. To fully leverage the system, taxpayers must carefully study and adapt to new working conditions.
How to contact us
For more information or consultation on VAT taxation in Belarus, do not hesitate to contact us. We are here to help and support you.
Phone and email communication options are available for your convenience:
- +375293664477 (WhatsApp/Telegram/Viber);
- info@spex.by.
