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Facebook and other global digital giants agree to pay Russia’s new VAT on digital content

Billions of rubles for state coffers

Apr 19, 2017
Facebook will pay Russia’s new 18% value-added tax as a foreign company selling digital content in Russia. The social network has joined a hundred other foreign companies that have registered to pay the VAT with Russia’s tax service.

Among these companies are Alibaba, Amazon, Apple Distribution International, Bloomberg, Financial Times, GoDaddy, Google Commerce Ltd, Microsoft Ireland, Netflix International B.V., as well as Wargaming Group (the Belarusian publisher of World of Tanks) and Chelsea football club (as a video content distributor).

Unexpectedly, LinkedIn also registered, in spite of the fact that its site is no longer accessible from Russia. It was blocked in November last year the telecom regulator Roskomnadzor for non compliance with Russia’s legislation on personal data storage.

Billions of rubles for state coffers

Starting January 1, foreign companies selling e-content via the Internet in Russia are required, in particular, to submit information on their sales in the country, and pay the 18% tax.

However, foreign companies may pay the tax via their local partners, as reported earlier by East-West Digital News.

The tax applies to the following types of content or services:

- selling and giving access to e-books, audio and visual content, images and music;
- computer programs and games;
- online advertising and other types of information on service or product offerings;
- domain name registration and hosting services.

This VAT is to be levied based on the customers identified as Russian residents by their credit card number or IP addresses.

To adjust for the tax, some companies are increasing prices on the online content they sell, transferring the cost of the tax onto Russian consumers.

These rules, nicknamed ‘Google tax law,’ were introduced this past summer via amendments to the Russian tax code. They apply to companies which generate revenues through their application stores in Russia, including such service providers as Gett and Uber.

Aiming to balance the scales between domestic and foreign Internet companies operating in Russia, the law may bring in to state coffers some ten billion rubles (approximately $160 million), according to its advocates.