Russia To Tax Foreign ‘Digital Services’

Russia continues to seek ways to strengthen its domestic tech sector, with the latest proposed development being a tax on foreign-owned digital services.

Reuters reported that Moscow is looking to introduce the new tax regime by November this year, and it comes after Russia continues to place a number of obligations on foreign firms operating within its borders.

In June for example Russia’s Duma (Russia’s parliament) passed legislation that would oblige US tech giants to open local offices in Russia by January 2022.

Failure to due so will result in “punitive measures”.

Russian rules

Then in November 2019 Russia’s lower house of parliament passed another law that was touted by the Russian government as making it easier for ordinary Russians to use the electronic gadgets they purchase.

The law was supposed to come into force in July 2020 and would have banned the sale of electronic devices including smartphones, smart TVs, and PCs, that were not pre-installed with Russian-made software.

However in March 2020 Russia postponed the implementation of this new law, just as the Coronavirus pandemic gathered pace around the world.

But that did not stop its eventual arrival.

In April 2021 the Russian legislation came into force that now means that all smartphones, computers and other smart devices purchased in Russia must come pre-installed with Russian software.

Russia’s digital ministry said the law applies to smartphones, tablets, smart TVs, laptops and PCs produced after 1 April 2021.

Russia meanwhile has also ‘successfully tested’ a country-wide alternative to the global internet in December 2019, but delayed another test in March 2020.

And as far back as 2014, the country has required foreign IT giants to store the personal data of Russian citizens on servers located in Russia itself.

Foreign tech tax

Now Reuters has reported that the Russian government has published a plan on Tuesday to impose new taxes on foreign-owned digital services by November.

The proposed tax on foreign tech firms has been presented as part of an international effort to agree new global tax rules, to better capture revenues generated by big tech firms which have previously shifted profits to low-tax jurisdictions such as Ireland or Luxembourg.

Russia’s deputy Finance Minister Alexei Sazanov was quoted by Reuters as saying earlier this year that large foreign digital companies providing services in Russia should be subject to profit taxes, and that Moscow was involved in discussions with the Paris-based Organisation for Economic Cooperation and Development (OECD).

Russia’s taxation effort on foreign entities comes after the country recently introduced a series of tax cuts for domestic IT firms.