VAT Procedures in the Customs Union
By Paul Sprague
Very often, cross-border transactions present obstacles for foreign companies due to cumbersome legislation, a lack of clarity on what should be done and how to account for the transaction in the accounting system. The following is some practical advice on how to navigate VAT transactions in the Customs Union.
The following is some practical advice on how to navigate VAT transactions in the Customs Union.
In this article, we will discuss VAT procedures as they apply to:
- Customs Union Tax Basics
- Deliveries from Third Countries into the Customs Union
- Deliveries from the Customs Union to Third Countries
- Deliveries within the Customs Union
1. Customs Union Tax Basics
VAT procedures in the Customs Union are in general similar to those in the European Union, however, there are important differences regarding cross-border deliveries.
There are uniform principles for the treatment of indirect taxes in Russia, Belarus and Kazakhstan.
All deliveries within the Customs Union that are treated as exports are subject to a VAT rate of 0 percent. Import VAT has to be paid, but to the relevant tax authorities rather than the customs authorities.
VAT tax rates are not uniform across the Customs Union, but rather vary by location. The following rates apply:
The regulations of the Customs Union have priority over national legislation; however, procedural law remains primarily national. The following differences should be noted:
- In contrast to Russia and Belarus, Kazakhstan has a VAT registration process separate from that of all other taxes
- Deadlines for VAT declarations and due dates for payment of VAT are regulated nationally
- There is no uniform VAT ID, unlike the situation in the European Union
2. Deliveries from Third Countries into the Customs Union
Prior to importing goods into a country of the Customs Union, the following must be done:
- Certificate of origin must be shown, if applicable
- Customs duty must be paid
- Import VAT must be paid to the customs authority (20 percent, 18 percent or 12 percent)
The following documents are required for accounting and tax purposes:
- Customs declaration, including confirmation of the payment of import VAT
- Reconciliation of balances with the customs authorities
Reimbursement of import VAT may be made in the VAT declaration according to the following schedule, depending on location:
The usual practice that is followed if a VAT declaration results in an input VAT surplus also depends on location:
3. Deliveries from the Customs Union to Third Countries
For deliveries from the Customs Union to third countries, the procedure varies slightly by Customs Union country of origin.
All countries (Russia, Belarus, Kazakhstan):
- Export documents are prepared with a VAT rate of 0 percent
- Failure to submit export documents within 180 days automatically leads to VAT being charged on shipments which have been treated as exports
Input VAT deduction can be made only after showing the export certificate of Russian customs authorities, receipt of payment from the client and some further documents (a bureaucratic and time consuming process).
An input VAT refund can be made only after confirmation of export and presentation of further documents. However, this process is faster than in Russia and the claim can be made on a monthly basis.
Input VAT deduction is allowed based on the export customs declaration.
4. Deliveries within the Customs Union
For deliveries within the Customs Union, the export VAT rate is 0 percent, while import VAT payment is made depending on the appropriate national rate (i.e. 20 percent, 18 percent or 12 percent).
Payment of import VAT must meet the following requirements:
- Payment of import VAT is made not to customs authorities, but to tax authorities
- Payment is not needed before import
- Payment is made within a separate monthly tax declaration for indirect taxes
- The deadline and date of payment is monthly on the 20th for the previous month
- Import VAT credit is in the form of input VAT in the regular VAT declaration
Declaration of indirect taxes
For all 3 countries, using the regular VAT declaration, submission is required by the 20th of the following month, while payment is required by the 20th of the next month.
While the workload for the provision of VAT documents remains much the same, the procedures involving import VAT and the resulting cash flow effects leave much to be desired when compared with the neighboring European Union. Furthermore, it should be noted that there are often issues with the uniform treatment of VAT for services provided within the Customs Union from one country to another, making this is a priority for authorities to review.
Companies have another cause for complaint, as many had hoped that the Customs Union would allow DDP (Delivery Duty Paid) deliveries to all three member states of the Customs Union, with registration in only one of the three countries. However, because of the unchanged requirement for import VAT to be paid when delivering from one member state to another, registrations are still required in all relevant countries. Nonetheless, the members of the Customs Union have undertaken an important step in the right direction towards easing trade.
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