The so-called «Google Tax» law was enacted in Russia in 2017. It means that foreign companies that create content and software and provide digital services must pay a 16.67% VAT in Russia.

In most cases, non-residents would pay this tax with the help of the Big Four consulting companies. Alexander Leushko, Product Director at Bank 131, talks about how foreign companies can pay the Google Tax now and which options to choose depending on the business specifics.

What has changed

Previously, non-residents would enter into agency agreements and transfer the tax amount to their Big Four partner's account. The consulting firm, in its turn, would send money to the Federal Tax Service via regular bank transfer. But after the Big Four companies announced that they're closing their offices in Russia, this method is no longer available to foreign businesses.

Today, non-resident foreign companies have three options for paying the «Google tax»:

• Open a Russian bank account and pay directly
• Enter an agreement with a Russian company that becomes an intermediary in paying the tax
• Set up automated payments via API through a Russian bank

Why can't companies pay directly

The Russian internal payment order has its structure. It has particular fields for paying taxes to the Federal Tax Service, which do not exist in the SWIFT payment order. Therefore, a foreign company cannot pay the «Google tax» using a foreign bank account.

Previously, non-residents could pay taxes directly through their accounts with the Federal Tax Service. A foreign company could receive an identifier (similar to the Russian TIN) and pay the «Google tax» with a card. However, international companies work with the cards issued by foreign banks, which stopped working in Russia. Thus, this payment method does not work for non-residents anymore.

How business size affects Google tax

On January 1, 2022, a new law regulating the operation of foreign IT companies in Russia came into force (commonly referred to as the law «on landing»). According to it, companies that provide information and digital services must open offices in Russia if their products have more than 500,000 users per day.

At the same time, there is a sector of small and medium-sized companies working in Russia. The new law does not regulate them, and leaving the Russian market would not benefit them. Therefore, the problem of paying the «Google tax» is a matter of utmost concern to the non-residents who have decided to continue their activities in Russia but are not ready to open a representative office.

How to pay tax through a Russian bank

Paying through a Russian bank is only suitable for tech giants that fall within the scope of the law «on landing». 500,000 daily users is a very high limit, and opening a Russian bank account is a long and expensive process. However, IT giants can afford to open an office as the related costs are minor compared to their business size. So, this option is already used by Google, Apple, and Wikipedia, which have agreed to open their representative offices in the country. These companies do not face the problem of paying the «Google tax» because opening an office involves opening a current account in a Russian bank.

How to pay tax through a Russian company

A non-resident can still find a consulting partner in Russia. Despite the departure of the Big Four, there are still companies operating in Russia that can provide a service of paying the «Google tax». These consulting firms are smaller than the members of the Big Four, but strictly speaking, they will process payments the same way – via a simple bank transfer to the address of the Federal Tax Service.

Despite the taxes not being subject to extra fees, consulting companies take a percentage of the business turnover for their services.

Other ways to pay Google tax

Since the law applies to foreign tech companies, paying the tax via an API may be a solution. Companies that create digital services often have their own development teams, so they would not have any problems with API integration.

Such a system can be configured to be fully automatic, and each transaction will be accounted for with VAT in mind. Further, in any accounting program (like 1C), you can create a «pay Google tax» button and do it in one click. You can pay the tax using the API at any convenient time – every day or once a week (at least once a quarter, as required by law).

We at Bank 131 have designed such a product for foreign companies. You can pay the tax through the bank API without fees. A non-resident company only has to pay a small fee once for implementing the solution.

International companies that remain in Russia will have to adapt to the new realities. The usual ways of paying the «Google tax» have transformed. However, this will not be a significant factor for IT companies deciding whether to continue doing business in Russia. There are still ways to comply with the law and pay the «Google tax», and new technological solutions emerge as an alternative to the old agency agreements.