How Tax Free works? Russian customs authorities. Russian tax authorities. Store. Operator

Transcription

1 Tax Free in Russia

2 In 2018, Russia introduced a Tax Free system which allows non-eurasian Economic Union (hereinafter foreign buyers ) to obtain a refund of VAT paid upon purchase of goods in Russia (under certain conditions). Reimbursement can be obtained in two ways: Directly through a Russian retailer (hereinafter a store ) Through an operator who works with stores and transfers the VAT amount to foreign buyers How Tax Free works? 1. A foreign buyer is eligible to obtain a refund of VAT paid upon purchase of goods in the amount exceeding RUB 10,000 per day provided certain conditions are met (as there are a number of limitations). Russian customs 6 Russian tax A store issues a special check for VAT refund (hereinafter, the Tax Free check ) to the foreign buyer. 2. The store transfers the information about the issued Tax Free checks to Russian customs (effective from 1 October 2018) The foreign buyer gets a customs stamp on the Tax Free check confirming that the purchased goods are exported outside the EAEU territory through a state border checkpoint approved by the Government. 1 Store 4. Foreign buyer provides the Tax Free checks to get the VAT back The operator (store) refunds VAT to the foreign buyer reduced by the fee for VAT reimbursement services which is subject to zero VAT Russian customs transfers the information about the Tax Free checks and the customs stamps on such checks to Russian tax in accordance with the decree of the Russian customs and Russian tax (effective from 1 October 2018). Operator 7. The store recovers VAT paid to the foreign buyer. VAT can be recovered within 1 year from the date of payment of VAT to the foreign buyer. Application of a zero VAT rate and the VAT recovery should be justified by submission of a register of Tax Free checks (or a list of checks during the period until 1 October 2018) to the tax in accordance with the procedure and in the form approved by the Russian tax.

3 Requirements for participants of the Tax Free system The Tax-Free system is accessible for those stores included in the list approved by the Russian Ministry of Industry and Trade. The application form, procedures for reviewing the applicants and removing stores from the list are established by the Russian Ministry of Industry and Trade. To be included in the aforementioned list, a store should meet the following requirements: 1. The address of the store should be in the list of locations approved by the Russian Government. 2. The company should have operated for at least two years before filing an application to join the Tax Free system. 3. The company should have no outstanding taxes, levies, or fines/penalties, which should be proved by a certificate issued by a tax authority at any date within 30 days before the filing the application. Locations of the Tax Free shops in 2018* Kaliningrad St. Petersburg Krasnogorsk Moscow Saransk Kazan Rostov-on-Don Samara Ekaterinburg Russia Sochi Volgograd * The list of locations may be extended

4 Automated solution for VAT refund management under the Tax Free system Description of the solution EY has developed a solution enabling stores to manage the VAT refund process under the Tax Free system. Functions: 1. Input/upload of data to generate Tax Free checks (compatibility with internal systems), including input data control for fullness and compliance with the required format, containing mandatory fields. 2. Generation of the Tax Free checks, including the following: Automatic calculation of the amount of VAT refund Generation of bar codes for automatic identification of the Tax Free check numbers 3. Automated interaction with external systems: Notification of the Russian customs on generated Tax Free checks in electronic form (effective from 1 October 2018) 4. Collection of supporting documents for filing to the tax, including the following: Automatic identification of incoming documents by bar code Centralized storage of supporting documents and Tax Free checks 5. Generation of tax and analytical reporting: Amounts of VAT refunded to foreign buyers to be reflected in VAT returns Registers of documents justifying VAT refunds Tax Free analitics, such as: VAT refund fees broken down by period and commodity group VAT refunds broken down by period and country of foreign buyer registration Generation of documents for banks for VAT refund Russian customs Foreign buyer Russian tax Electronic form Original Photo of stamped Tax Free check Original of stamped Tax Free check EY SOLUTION Generated Tax Free check Stamped Tax Free check Refunded Tax Free check Tax and analytical reporting Data of the buyer and data of the check confirming the sale Payment documents Payment confirmation Store Bank

5 What are the advantages? More competitive prices for foreign buyers Growth of demand from foreign buyers and sales revenue Contribution to the store s reputation (esp., in tourist regions) Increased store revenues from VAT-refund-related services What issues may arise? How to structure relationships between parties and set up business processes? What are the requirements for the participants and what documents are needed? What are the costs and how they should be justified? How EY can help? Analysis of costs, benefits and risks as well as feasibility of using the Tax-Free system Assistance with implementation and adjustment of business processes including review of processes suggested by the operators Assistance in communications with (e.g., with the Ministry of Industrial Trade, with the tax ) Assistance with documents for the implementation of the Tax Free system Development and implementation of the automated VAT refund management solution for the application of the Tax Free system. Advising on other issues/ambiguous regulations related Tax Free system How to ensure the full recovery of VAT paid to a foreign buyer in the full amount? Contact information Vadim Ilyin Partner, Indirect Tax Leader Tel.: +7 (495) Vadim.Ilyin@ru.ey.com Ilya Samouilov Senior Manager, Indirect Tax Tel.: +7 (495) Ilya.Samouilov@ru.ey.com Sergey Saraev Partner, Digital and Business Transformation Group Leaderin EMEIA (Europe, Middle East, India and Africa) Tel.: +7 (495) Sergey.Saraev@ru.ey.com Julia Sharova Manager, Digital and Business Transformation Group Tel.: +7 (495) Julia.Sharova@ru.ey.com

6 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY works together with companies across the CIS and assists them in realizing their business goals. 4,500 professionals work at 19 CIS offices (in Moscow, St. Petersburg, Novosibirsk, Ekaterinburg, Kazan, Krasnodar, Rostov-on-Don, Togliatti, Vladivostok, Almaty, Astana, Atyrau, Bishkek, Baku, Kyiv, Tashkent, Tbilisi, Yerevan and Minsk). EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com Ernst & Young Valuation and Advisory Services LLC. All Rights Reserved.