Russia-Armenia Foreign Trade: A Comprehensive Legal and Tax Guide

 

August 31, 2023

BRACE Law Firm ©

 

Russia and Armenia are member states of the Eurasian Economic Union, within which there is no requirement to declare exported goods or pay export customs duties.

In the Treaty on the Eurasian Economic Union (the "EAEU Treaty"), the member states established rules for trade and economic interaction. The Republic of Armenia joined the EAEU Treaty in October 2014. For the Republic of Armenia, the national lists of restrictions, exemptions, additional requirements, and conditions are defined by Decision of the Supreme Eurasian Economic Council No. 112 dated December 23, 2014, On the Approval of Individual National Lists of Restrictions, Exemptions, Additional Requirements, and Conditions within the Eurasian Economic Union for the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, and the Russian Federation.

Notably, within the Customs Union of the member states and based on the EAEU Customs Code:

• The internal market for goods functions;
• The Common Customs Tariff of the Eurasian Economic Union and other uniform measures for regulating foreign trade in goods with third parties apply;
• A uniform trade regime for goods applies in relations with third parties;
• Uniform customs regulation is implemented;
• Goods move freely between the territories of member states without the application of customs declaration or state control (transport, sanitary, veterinary-sanitary, and quarantine phytosanitary), except for cases provided for by the EAEU Treaty.

Plant products, food products, beverages, tobacco, mineral products, metals and metal products, machinery, equipment, and apparatus are exported from Russia to Armenia. Food products, beverages, tobacco, textiles, jewelry, and products of animal and plant origin are imported into Russia from Armenia.

Armenia and Russia do not share a common land border; therefore, the delivery of goods from one country to another is carried out either by air transport or through third countries using sea, road, rail, and multimodal transport.

Foreign Trade Contracts with Armenian Companies

The supply of goods from Russia to Armenia and vice versa begins with the selection of a counterparty, their verification, and the conclusion of a foreign trade contract. Despite the fact that the Russian Federation and the Republic of Armenia are member states of the Eurasian Economic Union and their foreign trade relations are significantly simplified, concluding a well-drafted foreign trade contract between entrepreneurs from these countries is a necessary condition for mutually beneficial cooperation and the reduction of subsequent risks.

Despite the unified economic space of the EAEU countries, when concluding a foreign trade contract, it is necessary to consider not only the norms of international law but also national legislation. At the same time, under Russian legislation, in the absence of an agreement between the parties on the applicable law, the law of the country where the party performing the services significant for the content of the contract has its main place of business at the time of conclusion applies. For sale and purchase agreements, the applicable law is the law of the seller's country. However, when concluding a contract or subsequently, the parties may choose by agreement between themselves the law to be applied to their rights and obligations under this contract.

The regulatory documents of Armenia governing trade activities are:

• Civil Code of the Republic of Armenia No. ZR-239 dated July 28, 1998;
• Law of the Republic of Armenia No. ZR-134 dated December 21, 2004, On Trade and Services;
• Decree of the Government of the Republic of Armenia No. 1524 dated December 29, 2014, On the Approval of Lists of Goods Prohibited and Subject to Restrictions for Transport Across the Customs Territory of the Republic of Armenia, the Establishment of Authorized Bodies, and the Approval of the Framework Procedure for Issuing Licenses and Permits for the Export and (or) Import of Goods;
• Law of the Republic of Armenia No. ZR-353 dated October 7, 2022, On Customs Regulation, etc.

A concluded foreign trade contract is necessary not only for foreign partners but also for transport and insurance companies, as well as regulatory and customs authorities. As a rule, a foreign trade contract reflects the subject of the contract (terms regarding the supplied goods), price and quantity, obligations of the parties, deadlines for the parties to fulfill their obligations under the contract, the moment of transfer of ownership of the goods from the seller to the buyer, insurance, the choice of a delivery basis in the case of using international Incoterms, and other conditions. In addition, a foreign trade contract is used for taxation, its registration with an authorized bank if necessary, and compliance with currency control regulations.

Movement of Goods and Vehicles Across the Border of Armenia (EAEU)

The movement of goods and vehicles is regulated by Annex No. 5 to the Treaty on the Accession of the Republic of Armenia to the Treaty on the Eurasian Economic Union dated May 29, 2014 (the "Accession Treaty of Armenia"). In accordance with this Annex, the specific aspects of moving goods and vehicles from the customs territory of the Eurasian Economic Union, including the territory of the Republic of Armenia, to the customs territory of the Eurasian Economic Union, including the territory of the Republic of Armenia (the "Customs Territory of the Union"), through territories that are not the customs territory of the Eurasian Economic Union (the "Territories of Foreign States"), are determined. The provisions of the Accession Treaty of Armenia do not apply to goods moved by pipeline transport, power lines, or by water or air routes.

At the same time, EAEU goods, when moved from the Customs Territory of the Union to the Customs Territory of the Union through Territories of Foreign States in accordance with the customs transit procedure, retain the status of EAEU goods. The customs authority in whose area of activity the place of movement of goods across the customs border of the Eurasian Economic Union is located (where the departure of goods from the Customs Territory of the Union is carried out), or the customs authority of departure, applies identification means to the vehicle, container, or other packaging intended for the transport of EAEU goods departing from the Customs Territory of the Union for transport from the Customs Territory of the Union to the Customs Territory of the Union through Territories of Foreign States. The procedure for applying identification means is determined by the customs authority of the EAEU member state where the place of departure is located.

After the completion of the customs transit procedure in respect of EAEU goods in accordance with the EAEU Customs Code and other international treaties and acts regulating customs legal relations that constitute Union law, the customs authority of destination does not perform customs operations related to placing such goods in temporary storage or their customs declaration in accordance with a customs procedure.

The customs transit procedure is applied for the transport (transportation) of goods from one part of the Customs Territory of the Union to another part of the Customs Territory of the Union through the territories of states that are not members of the Union. When importing from Armenia to Russia, it is necessary to arrange the customs transit procedure. For the customs transit procedure, the carrier or the declarant of the goods is obliged to submit a transit declaration to the Russian customs authority. In accordance with Clause 1 of Article 144 of the EAEU Customs Code, when placing goods under the customs transit procedure, the customs authority of departure establishes the period during which the goods must be delivered from the customs authority of departure to the customs authority of destination.

At the same time, monitoring the movement of EAEU goods from the Customs Territory of the Union to the Customs Territory of the Union through Territories of Foreign States is carried out using information interaction technology between the customs authorities of the member states.

Export of Goods to Armenia from Russia

The Russian Federation and the Republic of Armenia are members of the EAEU, for which, in accordance with Article 1 of the EAEU Customs Code, uniform customs regulation is implemented. It is important to note that within the EAEU, when exporting goods, there is no declaration of exported goods and, as a consequence, no payment of export customs duties is made and non-tariff regulation measures are not applied.

However, when interacting with partners from the EAEU, including those from Armenia, it is important to take into account that until December 31, 2023, special economic measures apply in the form of a permit-based procedure for the export of certain types of goods from the RF to the territories of EAEU member states.

When exporting goods to Armenia from Russia, it is important to comply with a number of regulatory documents related to both the activities of the EAEU and national law.

Registration of an Export Contract with a Bank

The procedure for the submission of supporting documents and information by residents and non-residents to authorized banks during currency operations is defined in Instruction of the Bank of Russia No. 181-I dated August 16, 2017, On the Procedure for the Submission of Supporting Documents and Information by Residents and Non-Residents to Authorized Banks During Currency Operations, on Uniform Forms for Accounting and Reporting on Currency Operations, and the Procedure and Deadlines for Their Submission. In accordance with this Instruction, if the amount of obligations is equivalent to 10 million rubles or more, residents are obliged to register export contracts with authorized banks.

In this regard, despite the absence of the need for customs declaration for the movement of goods between Russia and Armenia, a resident organization has an obligation to register the export contract with an authorized bank in connection with conducting currency operations.

Documents Supporting the 0% VAT Rate

For EAEU member states, VAT is paid based on the destination country principle, in accordance with which a zero VAT rate is applied upon the export of goods and they are taxed with this tax upon the import of goods. The zero VAT rate must be applied to export operations even when exporting goods that are exempt from VAT in the RF, as well as if a Russian organization has concluded a contract with a foreign organization that is not a taxpayer of an EAEU member state, but the consignee is an Economic Entity on the territory of Armenia with which the foreign organization has a contract.

To support the zero VAT rate and (or) exemption from excise taxes, the taxpayer submits the following documents (their copies) to the tax authority simultaneously with the tax return:

• Contracts (agreements) concluded with a taxpayer of another member state or with a taxpayer of a state that is not a member of the EAEU;
• An application for the import of goods and the payment of indirect taxes, prepared according to the form provided in Annex 1 to the Protocol dated December 11, 2009, On the Exchange of Information in Electronic Form Between the Tax Authorities of the Member States of the Eurasian Economic Union Regarding Paid Amounts of Indirect Taxes;
• Transport (shipping) and (or) other documents provided for by the member state's legislation, confirming the movement of goods from the territory of one member state to the territory of another member state.

In the specified package of documents, a Russian taxpayer is not required to submit a bank statement or other documents confirming payment for the goods to the tax authorities to support the justification for applying the 0% VAT rate when exporting goods from the territory of the RF to the territory of EAEU member states, nor are they required to submit a customs declaration or its copies.

Invoice for Export to Armenia

The exporter issues an invoice to the buyer in the established manner if the issuance of an invoice is provided for by the legislation of the EAEU member state. At the same time, the norms of the Tax Code of the RF do not provide for exceptions regarding the preparation of invoices for export goods taxed at a zero VAT rate. Furthermore, if a taxpayer does not issue an invoice for operations not subject to taxation based on Article 149 of the Tax Code of the RF, the exporter to EAEU countries, including Armenia, is obliged to prepare an invoice when performing operations for the sale of goods not subject to taxation (exempt from taxation). An invoice contains details that allow identifying the document on the shipment of goods (on the performance of work, on the provision of services) or on the transfer of property rights.

It should also be noted that instead of an invoice and a waybill, Russian companies are entitled to issue a Universal Transfer Document with status "1," as approved by their accounting policy. In this case, if the UTD form with status "1" is used, the taxpayer should supplement the specified form with line 5a of the invoice.

Customs Clearance for Export and Import of Goods from Russia to Armenia

Customs clearance is a mandatory condition for the movement of goods between states; however, within the EAEU, the customs clearance procedure is simplified and is carried out by submitting a statistical form for recording the movement of goods to the customs authorities. The keeping of statistics on mutual trade in goods between the Russian Federation and the member states of the Eurasian Economic Union is carried out on the basis of the Rules approved by Decree of the Government of the RF No. 891 dated June 19, 2020, On the Procedure for Keeping Statistics on Mutual Trade in Goods Between the Russian Federation and the Member States of the Eurasian Economic Union and on Recognising Certain Acts of the Government of the Russian Federation as Void (the "Government Decree No. 891"). The Rules apply to goods subject to accounting in the statistics of mutual trade in goods of the Russian Federation in accordance with the Methodology for keeping statistics on mutual trade in goods of the member states of the Eurasian Economic Union.

According to the Rules, the statistical form for recording the movement of goods is submitted by the Russian person who concluded the transaction or on whose behalf (by whose instruction) the transaction was concluded, in accordance with which the goods are imported into the Russian Federation from the territories of EAEU member states or exported from the Russian Federation to the territories of EAEU member states, or, in the absence of such a transaction, by the Russian person who at the moment of receipt (during import) or shipment (during export) of the goods had the right of ownership, use, and (or) disposal of the goods. At the same time, statistical forms may be submitted to the customs authority only by the applicant.

The statistical form for recording the movement of goods is submitted to the customs authority no later than the 10th business day of the calendar month following the calendar month in which the shipment or receipt of goods was carried out, except for cases where goods temporarily imported into the RF for a period of less than 1 year remain in the RF for 1 year or more.

For the purpose of forming data on the customs statistics of foreign trade in goods between the RF and states that are not members of the Union, customs authorities collect and process information on the movement of goods across the State Border of the Russian Federation contained in customs declarations and other documents specified in Article 105 of the EAEU Customs Code.

The failure to submit or the late submission of a statistical form for recording the movement of goods to the customs authority, or the submission of a statistical form for recording the movement of goods containing unreliable information, entails the imposition of an administrative fine under Article 19.7.13 of the CAO RF in the amount of:

• For officials: from 10 thousand to 15 thousand rubles;
• For legal entities: from 20 thousand to 50 thousand rubles.

Upon repeated commission of an administrative offense:

• For officials: from 20 thousand to 30 thousand rubles;
• For legal entities: from 50 thousand to 100 thousand rubles.

Taxation in the Interaction of Entrepreneurs from Armenia and Russia

Goods imported from the territory of one member state to the territory of another member state are subject to indirect taxes. Member states levy taxes, other fees, and payments in mutual trade in such a way that taxation in the member state where the goods of other member states are sold is no less favorable than the taxation applied by that member state under the same circumstances in respect of similar goods originating from its territory.

The levying of indirect taxes in mutual trade in goods is carried out according to the destination country principle, which provides for the application of a zero VAT rate and (or) exemption from excise taxes upon the export of goods, as well as their taxation with indirect taxes upon import. The levying of indirect taxes and the mechanism for controlling their payment during export and import of goods are carried out in the manner provided by Annex No. 18 to the EAEU Treaty. At the same time, when exporting goods from the territory of the RF to the territory of the Republic of Armenia, the RF taxpayer applies a zero VAT rate and (or) exemption from excise taxes upon submitting the following documents to the tax authority:

• Contracts (agreements) concluded with a taxpayer of another member state or with a taxpayer of a state that is not a member of the Union, on the basis of which the export of goods is carried out; in the case of leasing goods or a trade credit (a commodity loan, a loan in the form of things), leasing agreements (contracts) or trade credit agreements (commodity loan agreements, loan agreements in the form of things); contracts (agreements) for the manufacture of goods; contracts (agreements) for the processing of customer-supplied raw materials;
• A bank statement confirming the actual receipt of revenue from the sale of exported goods to the account of the taxpayer-exporter, unless otherwise provided by the member state's legislation;
• An application for the import of goods and the payment of indirect taxes, prepared according to the form provided by a separate international interagency treaty, with a mark from the tax authority of the member state to whose territory the goods were imported regarding the payment of indirect taxes (exemption or other procedure for fulfilling tax obligations) (on paper in original or in copy at the discretion of the tax authorities of the member states) or a list of applications (on paper or in electronic form with an electronic signature of the taxpayer);
• Transport (shipping) and (or) other documents provided for by the member state's legislation confirming the movement of goods from the territory of one member state to the territory of another member state; these documents are not submitted if the legislation of the member state does not provide for the preparation of these documents for certain types of movement of goods, including the movement of goods without the use of vehicles;
• Other documents confirming the justification for applying the zero VAT rate and (or) exemption from excise taxes provided for by the legislation of the member state from whose territory the goods were exported.

The form of the list of applications, the procedure for filling it out, and the format are determined by the regulatory legal acts of the tax authorities of the member states or other regulatory legal acts of the member states. The forms of the List of Applications for the Import of Goods and the Payment of Indirect Taxes, the procedure for filling it out, and the format for its submission in electronic form are defined by Order of the FAS Russia No. MMV-7-15/139@, On the Approval of the Form of the List of Applications for the Import of Goods and the Payment of Indirect Taxes, the Procedure for Filling It Out, and the Format for Its Submission in Electronic Form.

The specified documents may be submitted in electronic form in the manner established by the regulatory legal acts of the tax authorities of the member states or other regulatory legal acts of the member states. The format of the specified documents is determined by the tax authorities of the member states or other regulatory legal acts of the member states.

It is important to note that a zero rate of value-added tax (VAT 0%) is applied upon the export of goods, including those exempt from value-added taxation in accordance with national legislation. At the same time, for example, when a Russian organization sells goods under a contract concluded with a foreign person who is not a taxpayer of an EAEU member state, but the consignee is an Economic Entity on the territory of Armenia that acquires these goods from that foreign person, VAT taxation is carried out at a rate of 0 percent, provided that the documents established are submitted to the tax authority. To confirm the justification for applying the zero rate of value-added tax and (or) exemption from excise tax when exporting goods to the territory of EAEU member states, a bank statement confirming the actual receipt of revenue from the sale of exported goods to the account of the taxpayer-exporter must be submitted to the tax authorities, among other things. At the same time, the specified documents are not submitted to the tax authority if their submission is not provided for by the legislation of the EAEU member state in respect of goods exported from the territory of the EAEU member state outside the EAEU.

Considering that a zero rate of value-added tax is applied upon the export of goods from the territory of one EAEU member state to the territory of another EAEU member state, and Article 7 of the Tax Code of the RF establishes the priority of the norms and rules of international treaties of the RF containing provisions related to taxation over the rules and norms provided by the Tax Code of the RF, a Russian organization exporting goods to EAEU member states is not entitled to waive the application of the zero rate of value-added tax.

At the same time, when exporting goods to EAEU countries, including Armenia, Russian entrepreneurs are entitled to issue a Universal Transfer Document, as approved by the accounting policy of such entrepreneurs, instead of an invoice and a waybill. In this case, the UTD form recommended by Letter of the FAS Russia No. MMV-20-3/96@ is a document representing an invoice supplemented with the details of primary accounting documents confirming the transfer of inventory (property rights) and the delivery-acceptance of work (services). It should be remembered that if the UTD form with status "1" is used, the taxpayer should supplement the specified form with line 5a of the invoice.

Furthermore, the exchange of information between the tax authorities of the member states necessary to ensure the completeness of payment of indirect taxes is carried out in accordance with a separate international interagency treaty, which also establishes the procedure for the exchange of information, the form of the application for the import of goods and the payment of indirect taxes, the rules for filling it out, and the requirements for the exchange format. Such a document is the Protocol dated December 11, 2009, On the Exchange of Information in Electronic Form Between the Tax Authorities of the Member States of the Eurasian Economic Union Regarding Paid Amounts of Indirect Taxes. Armenia joined this Protocol in 2015.

It should also be noted that there are regulatory documents in force between the countries that were adopted before the entry into force of the EAEU Customs Code and do not contradict its norms, for example:

• Agreement between the Government of the RF and the Government of the Republic of Armenia dated December 28, 1996, On the Avoidance of Double Taxation on Income and Property;
• Agreement between the Government of the RF and the Government of the Republic of Armenia dated October 20, 2000, On the Principles of Levying Indirect Taxes in Mutual Trade;
• Agreement between the Government of the RF and the Government of the Republic of Armenia dated March 11, 1994, On Cooperation and Mutual Assistance on Issues of Compliance with Tax Legislation.

In respect of avoiding double taxation, the Ministry of Finance expressed its position in its letters:

• Simplified Taxation System and the Turnover Tax introduced in Armenia. Individual entrepreneurs' income received both from sources in the Russian Federation and from sources outside the Russian Federation is taken into account as part of income when determining the tax base for the tax paid in connection with the application of the Simplified Taxation System. At the same time, the STS is a special tax regime that establishes a specific procedure for determining the tax base, and Chapter 26.2 of the Tax Code of the RF does not contain special norms for avoiding double taxation. Taking into account that the Simplified Taxation System replaces not only taxes on income and property but also establishes exemption from the obligation to pay value-added tax, the provisions of the Agreement on the Avoidance of Double Taxation on Income and Property do not apply to the Simplified Taxation System because this taxation system is not analogous to those taxes to which the provisions of the Agreement on the Avoidance of Double Taxation on Income and Property apply.
• Professional Income Tax for the self-employed. PIT taxpayers are exempt from taxation with personal income tax in respect of income that is the object of taxation with professional income tax, are not recognized as value-added tax taxpayers, and are not recognized as payers of insurance contributions for the period of applying the special tax regime. This taxation system is not analogous to the taxes to which the Agreement on the Avoidance of Double Taxation on Income and Property applies, in connection with which the special tax regime PIT for the self-employed does not fall under the effect of the Agreement on the Avoidance of Double Taxation on Income and Property.

Provision of Services in Electronic Form with an Economic Entity of the Republic of Armenia

Technical capabilities allow for carrying out entrepreneurial activity in electronic form, while the entrepreneur themselves may be located far beyond the borders of the country of which they are a resident. In this case, the question of the taxation of such activity arises. It is important to note that services in electronic form include:

• The granting of rights to use computer programs and databases via the Internet, including by providing remote access to them, including updates to them and additional functional capabilities;
• The storage of information, provided that the person who provided this information has access to it via the Internet;
• The provision of real-time computing power for placing information in an information system.

The place of sale of services in electronic form is determined by the location of the buyer of such services. Considering that Russia and Armenia are members of the EAEU, the norms of the Treaty on the Eurasian Economic Union and the Protocol on the Procedure for Levying Indirect Taxes and the Mechanism for Controlling Their Payment during the Export and Import of Goods, the Performance of Work, and the Provision of Services apply to the relations between Economic Entities from these countries. In accordance with Clauses 1 and 28 of this Protocol, VAT on the provision of services is levied in accordance with the tax legislation of the EAEU member state whose territory is recognized as the place of sale of the services.

The Ministry of Finance of Russia expressed its opinion in letters on the issue of the taxation of the provision of services in electronic form:

• If an Economic Entity of an EAEU state provides a Russian organization with types of services in electronic form, the place of sale of which, in accordance with Subclause 4 of Clause 29 of the Protocol on the Procedure for Levying Indirect Taxes and the Mechanism for Controlling Their Payment during the Export and Import of Goods, is recognized as the territory of the EAEU member state in which the buyer of the services carries out its activity, such services are subject to VAT taxation in the Russian Federation. At the same time, for services in electronic form, the place of provision of services should be determined in accordance with Subclause 5 of Clause 29 of the Protocol on the Procedure for Levying Indirect Taxes and the Mechanism for Controlling Their Payment during the Export and Import of Goods, namely, by the location of the service provider. Thus, if the place of provision of services in electronic form is the Republic of Armenia, then these services will not be subject to VAT on the territory of the RF.
• When an Economic Entity of the Republic of Armenia provides a Russian organization with services for granting the right of access via the Internet to software and a database, the value-added tax is calculated by the Russian organization in the manner provided by Clauses 1 and 2 of Article 161 of the EAEU Customs Code. According to Clauses 1 and 2 of Article 161 of the EAEU Customs Code, in the case of acquiring services from a foreign person who is not registered with the tax authorities or is registered with the tax authorities only in connection with the presence on the territory of the Russian Federation of immovable property and (or) vehicles belonging to them or in connection with the opening of an account in a bank, and the place of sale of these services for the purpose of applying the value-added tax is recognized as the territory of the Russian Federation, the value-added tax is paid by the tax agents, which are organizations.
• In the event that an Economic Entity of the Republic of Armenia provides a Russian organization with types of services in electronic form, the place of sale of which, in accordance with Subclause 4 of Clause 29 of the Protocol on the Procedure for Levying Indirect Taxes and the Mechanism for Controlling Their Payment during the Export and Import of Goods, is recognized as the territory of the EAEU member state in which the buyer of the services carries out its activity, such services are subject to value-added tax taxation in the Russian Federation.
• Services for providing the functional capabilities of a cloud platform and virtual infrastructure by providing remote access via the Internet are not named in Subclauses 1–4 of Clause 29 of the Protocol on the Procedure for Levying Indirect Taxes and the Mechanism for Controlling Their Payment during the Export and Import of Goods; the place of sale of these services for the purpose of calculating the value-added tax is determined according to Subclause 5 of Clause 29 of the Protocol by the location of the service provider. The territory of the Russian Federation is not recognized as the place of sale of the services provided by an Economic Entity of the Republic of Armenia to a Russian organization and, accordingly, such services are not subject to VAT in the Russian Federation.

Import of Goods to Russia from Armenia and Their Sale Based on a Commission Agreement

When selling goods imported into the Russian Federation from the territory of the Republic of Armenia to Russian buyers who are individuals, based on a commission agreement by a Russian organization (commission agent) on behalf of an Armenian organization (comittent) with the participation of a Russian sub-commission agent, it is also necessary to consider the issue of taxation, on the application of which the Ministry of Finance of Russia has expressed its opinion.

In accordance with Clause 1 of Article 146 of the Tax Code of the RF, operations for the sale of goods on the territory of the Russian Federation are recognized as objects of value-added tax taxation.

The procedure for determining the place of sale of goods for the purpose of applying the value-added tax in the Russian Federation is established by the norms of Article 147 of the Tax Code of the RF, according to which the territory of the Russian Federation is recognized as the place of sale of goods if the goods are located on the territory of the Russian Federation at the moment the shipment and transportation begin.

If the goods are located outside the territory of the Russian Federation at the moment the shipment and transportation begin, then the territory of the Russian Federation is not recognized as the place of sale of such goods.

Thus, the sale of goods imported into the Russian Federation from the territory of the Republic of Armenia by a Russian organization on behalf of a comittent based on a commission agreement on the territory of the Russian Federation is not an object of value-added tax taxation in the Russian Federation. The EAEU Customs Code does not provide for the payment of value-added tax during the import of goods into the Russian Federation from the territory of another EAEU member state by a commission agent (sub-commission agent), an attorney, or an agent. In this case, the amount of value-added tax is not indicated in the receipts generated using cash register equipment for the goods sold by the commission agent (sub-commission agent). At the same time, the tax base for both the commission agent and the sub-commission agent is determined in the manner provided by Clause 1 of Article 156 of the NK RF.

VAT on the Provision of Services for the Search and Selection of Potential Partners by an Economic Entity of the Republic of Armenia

Services for the search and selection of potential partners are one of the key areas of interaction between Russian and foreign partners, including those from Armenia. At the same time, when carrying out such activity, it is necessary to take into account the question of taxation. On the issue of applying value-added tax when an Economic Entity of the Republic of Armenia provides a Russian organization applying the STS with services for the search and selection of potential partners, the Department of Tax Policy expressed its opinion in a letter, in accordance with which it reports the following.

The procedure for applying value-added tax in the trade relations of EAEU member states is determined by the Protocol on the Procedure for Levying Indirect Taxes and the Mechanism for Controlling Their Payment during the Export and Import of Goods, the Performance of Work, and the Provision of Services, which is Annex No. 18 to the Treaty on the Eurasian Economic Union dated May 29, 2014.

The place of sale of services for the search and selection of potential partners is determined by the place where the organization providing such services carries out its activity, based on Subclause 5 of Clause 29 of Section IV "Procedure for Levying Indirect Taxes during the Performance of Work and the Provision of Services" of the Protocol on the Procedure for Levying Indirect Taxes and the Mechanism for Controlling Their Payment during the Export and Import of Goods, the Performance of Work, and the Provision of Services. In this regard, for the purpose of applying VAT, the territory of the Russian Federation is not recognized as the place of sale of the specified services provided by an Economic Entity of the Republic of Armenia to a Russian organization and, accordingly, such services are not subject to value-added tax in the Russian Federation.

NDFL in Russia on Income from Entrepreneurial Activity in Armenia

Often, RF residents register as individual entrepreneurs in Armenia and carry out entrepreneurial activity there. However, in this case, it is necessary to pay attention to the calculation of taxation as an entrepreneur acting on the territory of Armenia but who is also a resident of the RF as well.

As a general rule, individuals who are actually present in the RF for at least 183 calendar days during 12 consecutive months are recognized as tax residents. In the event that a citizen of the RF who is an RF tax resident is a recipient of income on the territory of Armenia, then they must calculate, declare according to form 3-NDFL, and pay NDFL. In accordance with Article 209 of the NK RF, income received by RF tax residents both from sources in the RF and from sources outside the RF is recognized as the object of NDFL taxation, and for individuals who are not tax residents, only income from sources in the RF is recognized.

At the same time, if an international treaty of the RF on taxation issues provides for a credit in the RF for the amount of tax paid by an individual who is an RF tax resident in a foreign state on income received by them, such a credit is carried out by the tax authority in the manner established by Subclauses 2–4 of Article 232 of the NK RF. In this case, if an international treaty of the RF establishes rules and norms other than those provided by the NK RF and the regulatory legal acts adopted in accordance with it, the rules and norms of the international treaties of the RF apply.

In accordance with Clause 3 of Article 2 of the Agreement on the Avoidance of Double Taxation on Income and Property, the taxes to which the effect of this document applies, in relation to the RF, are, in particular: the corporate income tax; the personal income tax; the corporate property tax; the personal property tax, as well as any identical or substantially similar taxes that will be levied in addition to or instead of the existing taxes after the date of signing the Agreement on the Avoidance of Double Taxation on Income and Property. It is important to note that the provisions of the Agreement on the Avoidance of Double Taxation on Income and Property do not apply to the STS, because this taxation system is not analogous to those taxes to which the Agreement on the Avoidance of Double Taxation on Income and Property applies.

Thus, an RF resident carrying out entrepreneurial activity in Armenia must pay tax in Armenia and NDFL in the RF on income received from entrepreneurial activity in Armenia.

To formalize trade relations between entrepreneurs from Russia and Armenia, it is necessary not only to draft and conclude a foreign trade contract but also to comply with the customs legislation of the Eurasian Economic Union, as well as the national legislations of the partners, while also taking into account the bilateral agreements concluded between these countries that regulate trade relations.

Despite the unified economic space of the EAEU, when regulating partner relations, it is important to reflect all aspects of trade relations and include in the foreign trade contract not only general terms for the supply of goods but also to choose the applicable law and the jurisdiction for disputes, and to take into account all the subtleties of an international transaction.

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References

1. Resolution of the Arbitration Court of the North Caucasus District dated June 14, 2022, No. F08-4048/2022 in Case No. A53-24602/2021.
2. Treaty on the Eurasian Economic Union, signed in Astana on May 29, 2014.
3. Treaty on the Accession of the Republic of Armenia to the Treaty on the Eurasian Economic Union dated May 29, 2014, signed in Minsk on October 10, 2014.
4. Decision of the Council of the Eurasian Economic Commission No. 80 dated September 14, 2021, On the Approval of the Unified Commodity Nomenclature of Foreign Economic Activity of the Eurasian Economic Union and the Common Customs Tariff of the Eurasian Economic Union, and on Amending and Recognizing Certain Decisions of the Council of the Eurasian Economic Commission as Void.
5. Export and Import of Russia by Goods and Countries. Export from Russia to Armenia. "All Goods." "2020 – 2020." Ru-Stat Portal.
6. Export and Import of Russia by Goods and Countries. Import into Russia from Armenia. "All Goods." "2020 – 2020." Ru-Stat Portal.
7. Article 1211 of the Civil Code of the Russian Federation.
8. Article 1210 of the Civil Code of the Russian Federation.
9. Resolution of the Seventeenth Arbitration Appeal Court dated March 16, 2022, No. 17AP-17743/2021-AK in Case No. A60-27581/2021.
10. Resolution of the Arbitration Court of the North Caucasus District dated September 10, 2019, No. F08-8143/2019 in Case No. A15-2650/2017.
11. Clause 2 of Article 142 of the EAEU Customs Code.
12. Resolution of the Arbitration Court of the Ural District dated August 17, 2022, No. F09-3796/22 in Case No. A60-27581/2021.
13. Clause 3 of Article 151 of the EAEU Customs Code.
14. Article 25 of the Treaty on the Eurasian Economic Union.
15. Decree of the Government of the Russian Federation No. 312 dated March 9, 2022, On the Introduction of a Permit-Based Procedure for the Export of Certain Types of Goods Outside the Territory of the Russian Federation on a Temporary Basis.
16. Letter of the Ministry of Finance of Russia No. 03-07-11/58589 dated October 7, 2016.
17. Letter of the Ministry of Finance of Russia No. 03-07-08/124803 dated December 20, 2022.
18. Letter of the Ministry of Finance of Russia No. 03-07-13/1/81506 dated November 13, 2018.
19. Letter of the FAS Russia No. SD-4-3/8126@ dated April 27, 2017.
20. Letter of the Ministry of Finance of Russia No. 03-07-11/58589 dated October 7, 2016.
21. Letter of the FAS Russia No. ZG-3-3/4368 dated June 17, 2021.
22. Decision of the Board of the Eurasian Economic Commission No. 210 dated December 25, 2018, On the Approval of the Methodology for Keeping Statistics on Mutual Trade in Goods of the Member States of the Eurasian Economic Union and the Methodology for Keeping Customs Statistics on Foreign Trade in Goods of the Member States of the Eurasian Economic Union.
23. Letter of the Ministry of Finance of Russia No. 27-01-23/76454 dated September 1, 2020, On the Submission to the Customs Authority of a Statistical Form for Recording the Movement of Goods.
24. Resolution of the Arbitration Court of the Volga-Vyatka District dated August 17, 2022, No. F01-3679/2022 in Case No. A17-10668/2021.
25. Clause 9 of the Rules for keeping statistics on mutual trade in goods between the RF and the member states of the EAEU, approved by Government Decree No. 891.
26. Resolution of the Arbitration Court of the Ural District dated August 3, 2023, No. F09-4349/23 in Case No. A50-29608/2022.
27. Article 277 of Federal Law No. 289-FZ dated August 3, 2018, On Customs Regulation in the Russian Federation and on Amending Certain Legislative Acts of the Russian Federation.
28. Resolution of the Arbitration Court of the North Caucasus District dated February 21, 2017, No. F08-397/2017 in Case No. A63-3641/2016.
29. Resolution of the Arbitration Court of the West Siberian District dated March 15, 2021, No. F04-6271/2020 in Case No. A46-5538/2020.
30. Article 71 of the EAEU Treaty.
31. Article 72 of the EAEU Treaty.
32. Order of the FAS Russia No. MMV-7-15/139@ dated April 6, 2015, On the Approval of the Form of the List of Applications for the Import of Goods and the Payment of Indirect Taxes, the Procedure for Filling It Out, and the Format for Its Submission in Electronic Form.
33. Letter of the Ministry of Finance of Russia No. 03-07-11/58589 dated October 7, 2016.
34. Letter of the Ministry of Finance of Russia No. 03-07-08/124803 dated December 20, 2022.
35. Letter of the Ministry of Finance of Russia No. 03-07-13/1/81506 dated November 13, 2018.
36. Letter of the Ministry of Finance of Russia No. 03-07-13/1/24 dated January 9, 2019.
37. Letter of the FAS Russia No. ED-4-15/12070 dated July 6, 2016.
38. Letter of the FAS Russia No. ZG-3-3/4368 dated June 17, 2021, On the Consideration of an Appeal.
39. Clause 3 of Article 72 of the EAEU Treaty.
40. Resolution of the Arbitration Court of the North Caucasus District dated November 19, 2021, No. F08-12205/2021 in Case No. A63-2094/2021.
41. Protocol on the Accession of the Ministry of Finance of the Republic of Armenia to the Protocol on the Exchange of Information in Electronic Form Between the Tax Authorities of the Member States of the Eurasian Economic Union Regarding Paid Amounts of Indirect Taxes dated December 11, 2009, signed in Moscow on January 26, 2015.
42. Clause 1 of Article 174.2 of the Tax Code of the Russian Federation.
43. Subclause 4 of Clauses 1 and 1.1 of Article 148 of the Tax Code of the Russian Federation.
44. Letter of the Ministry of Finance of Russia No. 03-07-13/1/126172 dated December 22, 2022.
45. Letter of the Ministry of Finance of the RF No. 03-07-13/1/126172 dated December 22, 2022.
46. Letter of the Ministry of Finance of the RF No. 03-07-13/1/15291 dated February 22, 2023.
47. Letter of the Ministry of Finance of Russia No. 03-07-13/1/65700 dated July 8, 2022.
48. Letter of the Ministry of Finance of Russia No. 03-07-13/1/88895 dated September 14, 2022.
49. Letter of the Ministry of Finance of Russia No. 03-07-13/1/88904 dated September 14, 2022.
50. Clause 2 of Article 207 of the Tax Code of the Russian Federation.
51. Clause 1 of Article 232 of the Tax Code of the Russian Federation.
52. Clause 1 of Article 7 of the Tax Code of the Russian Federation.