Russia is planning to make foreign IT companies open local offices and pay taxes

The Russian government plans to create a “digital residency” system for foreign IT companies, reports the business newspaper Kommersant, referencing the support plan for the IT industry that the Cabinet of Minister is set to discuss on Thursday, March 18.

According to this initiative, Russia will adopt legislation by the end of 2021 that will oblige foreign companies with a client base of more than 100–500 thousand Russian users to register legal entities in the country and pay taxes.

Foreign nationals will be able to register remotely through a personal account with the Federal Tax Service, or by creating representative offices or subsidiaries jointly with Russian companies. Companies that refuse to register may face sanctions, though the specifics of the penalties have yet to be disclosed.

Experts told Kommersant that the new regulations would apply to Internet giants like Google and Facebook, who earn money in Russia through advertising, as well as service aggregators like Booking and Amazon, and gaming services like Wargaming.net and Steam.

Such measures are necessary to ensure equal conditions for the implementation of legislation for foreign and Russian companies working in our country, says Alexander Zhuravlev, the commission chairman of the Moscow branch of the Russian Lawyers’ Association (AYuR). Russian companies, unlike foreign ones, are obliged to pay VAT, and this inequality makes them register abroad, the expert notes. Including, for example Yandex and Telegram.

As previously reported by Vedomosti, in another bid to bolster the development of Russia’s IT industry, the Digital Development Ministry has proposed taxing the income that Russian bloggers receive from advertising on foreign platforms.