Obligation of EAEU sellers to pay VAT in Russia will lead to higher prices on markets – experts

What happened

• Starting from July 1, 2024, sellers from the Eurasian Economic Union (EAEU) countries began paying VAT in Russia when selling goods through e-commerce platforms (ETPs).
• VAT will be calculated by sellers and intermediaries in the EAEU and will be determined on the basis of an estimated tax rate of 16.67% or 9.09%.

In this case, ETPs are any online platform where goods are bought and sold, including marketplaces, explained Oksana Soboleva, head of tax practice at Bishenov&Partners. According to her, these players are subject to the new tax regime.

Until July 1, Russian sellers paid VAT when selling goods to a buyer both in Russia and in the EAEU country, while foreign sellers did not pay Russian VAT when selling goods in Russia, adds Ekaterina Avdeeva, a member of the General Business Council of Russia, head of the expert center for criminal law policy and enforcement of judicial acts of Business Russia.

“From July 1, 2024, double taxation will be eliminated for domestic sellers who supplied their goods abroad; such sales will not be subject to VAT in Russia. At the same time, the obligation to pay VAT in the country of actual sale of the goods will remain,” Avdeeva explains.

In addition, Russian sellers will be able to deduct VAT paid in EAEU countries for 2023 and the first half of 2024.

Consequences of innovation for end consumers

For end buyers, the innovation will most likely translate into higher prices for goods, as most sellers will likely decide to include VAT in their prices, suggests Sobolev, head of tax practice at Bishenov&Partners.

There is a connection between the need to pay VAT in Russia and prices, but not a direct one, explains Olga Smirnova, an expert at the Aktion Accounting service of the Aktion Group.

In addition to price increases, Bishenov&Partners predicts a possible change in the market offering. “There may be an exit of a certain category of sellers who are not willing to assume additional tax obligations and administrative costs. This could lead to a reduction in the choice of goods for consumers and negatively affect the competitiveness of the markets,” the expert notes.

Consequences of innovation for foreign sellers

The absence of VAT obligations for sellers from EAEU countries has made their products more competitive, says Soboleva, head of tax practice at Bishenov&Partners, and Smirnova, an expert at Aktion Accounting, adds that for sellers from EAEU countries with low sales margins, the introduction of VAT will be a reason to leave the Russian market.

The profitability of sales of foreign sellers will decrease as a result of the changes, agrees Avdeeva, a member of the General Business Council of Russia, but this will not lead to their departure.

In addition to paying VAT, EAEU sellers will have to take into account additional administrative burdens associated with maintaining tax reporting in Russia, notes Soboleva, head of tax practice at Bishenov&Partners.

“This includes the correct calculation and remittance of VAT, as well as the regular submission of declarations to the tax authorities. Therefore, the new tax obligations will require not only additional financial costs for sellers, but also changes in their operational activities,” the expert concluded.