The Russian authorities have outlined their initiative to allow foreign IT companies the opportunity to register subsidiaries or representative offices in Russia and pay taxes within the territory of the Russian Federation. At the same time, foreign social networks, content and gaming services will have access to the format of “digital residency” – a form of remote registration in the personal account of the Federal Tax Service of Russia.

On behalf of President Vladimir Putin, the government has until August 1st, 2021 to prepare additional requirements for foreign IT companies to comply with, including the opening of their representative offices in the Russian Federation, in connection with which, the Government of the Russian Federation plans to create a system of “digital residency” in Russia for foreign companies and businesses from the IT sector by the end of the year.

Internet behemoths such as Google, Facebook, Booking.com, and Amazon fall under the requirements of the new regulation but other online service aggregators providing content,  gaming services, messaging, social networks, and e-commerce stores may also come under its scope.

As part of the creation of the system, a bill is to be adopted that will oblige foreign companies (with more than 100-500 thousand users in Russia) to register legal entities in Russia and pay taxes within the territory of the country.

The draft law offers several options for registration:

1) Register remotely within the personal account of the Federal Tax Service of the Russian Federation.

2) The registration of subsidiaries held jointly with Russian companies. In this case, the Russian representative of the foreign company’s trademark will be responsible for the foreign company.

After the adoption of the law, foreign services will have a month to apply for registration, otherwise they may face sanctions.

These measures are necessary to ensure equal conditions for the implementation of legislation for foreign and Russian companies operating in Russia. Russian companies, unlike foreign invested companies, are required to pay VAT, and this inequality forces them to register abroad, examples of which include, Yandex and Telegram.

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