Tax benefits and preferences for exporters

Zero VAT rate: a benefit with specific conditions

Applying the 0% rate on exports exempts a company from paying VAT on revenue from foreign trade transactions. It is important to understand that this is a benefit, not an exemption from the tax itself. The obligation to prepare and file a VAT return remains in full. Moreover, applying the zero rate requires increased attention to tax and accounting records and carries additional risks.

Tax authorities conduct desk audits of declarations filed by exporters applying the 0% rate with particular scrutiny. The subject of control is not only individual export transactions but also the company’s entire reporting for the audited period. Inspectors thoroughly examine documents confirming the actual export of goods outside the country: waybills, invoices, bank statements.

If an organization cannot provide documentary evidence justifying the application of the zero rate, instead of the benefit it will receive:

• additional VAT assessed at the standard rate (10% or 20%);
• penalties for late payment;
• fines.

Option to waive the zero rate

Since January 2018, legislation has granted exporters the right to waive the application of the zero rate. This decision may be appropriate for companies that are not prepared for the additional burden of collecting and processing supporting documents, as well as for the heightened scrutiny from tax authorities during desk audits.

To take advantage of this option, it is necessary to:

• submit an application in any form to the tax office at the place of registration;
• do so no later than the first day of the quarter from which the company intends to apply the general taxation regime.

VAT refund on exports

In export operations, an amount of VAT recoverable from the budget may arise. This occurs when a company:

• purchases goods (works, services) from Russian suppliers with VAT for subsequent resale as exports;
• acquires components with VAT for the production of goods that will be sold abroad.

The right to a refund of export VAT is established by Article 171 of the Tax Code of the Russian Federation.

Specifics for raw material and non‑raw material exports

The procedure for VAT refund depends on the category of the exported goods. The classification is approved by Decree of the Government of the Russian Federation No. 466 of April 18, 2018.

Non‑raw material exports

For goods not classified as raw materials, a simplified refund procedure applies. A VAT deduction may be claimed immediately after the goods (works, services) are registered for accounting, without waiting for:

• the actual delivery of the goods to the foreign counterparty;
• confirmation of the validity of applying the zero rate.

Raw material exports

For raw material goods (oil, gas, timber, ore, metals, etc.), the general procedure established by paragraphs 1 and 10 of Article 165 of the Tax Code of the Russian Federation applies. VAT refund for such transactions is carried out only after the company has substantiated the validity of applying the zero rate.

Separate VAT accounting for raw material exports

Companies exporting raw materials are required to maintain separate accounting for transactions subject to different VAT rates. The primary purpose of such accounting is to correctly calculate the amount of tax attributable to export operations. This portion of VAT may be claimed as a deduction only after documentary confirmation of the zero rate.

The Tax Code does not establish specific methods for maintaining separate accounting. The company must independently develop the procedure and enshrine it in its accounting policy for tax purposes. This requirement is set forth in paragraph 10 of Article 165 of the Tax Code of the Russian Federation and is supported by clarifications from the Ministry of Finance of Russia (for example, in Letter No. 03-07-08/40366 of July 14, 2015).