Digitization is the order of the day, and governments all over the world have started embracing this concept. Many businesses are digitizing their tax processes by using tax engines that offer global solutions that enable a more efficient compliance system and tax optimization.
Russia is also proceeding on the above lines, targeting maximum digitization in the next 2-3 years. The country has ambitious plans to bring 95% of the invoices and 70% of transport documents in digital form, by the year 2024. The National Track and Trace Digital System, known as Chestny ZNAK, which mandates Global Trade Item Number (GTIN), Verification Key, and Crypto Code for all products, was developed in 2018 and initially applied to medicines. However, most of the goods traded are being proposed to be bought under this system by 2024.
Hitherto, e-invoicing for B2B transactions, which was based on an agreement between the issuer of the invoice and its recipient was voluntary under the Russian Tax Code. However, effective July 1, 2021, issuance and acceptance of e-invoices will become mandatory for certain categories of goods, which fall under the Traceability System.
The Traceability System, which aims to eliminate smuggling and tax evasion, tracks the movement of certain specified goods which are imported into Russia and the Eurasian Economic Union vide Batch Registration Numbers. The tracking happens at each stage of the transaction by means of these Registration Numbers which would be an integral part of the e-Invoice and other supporting Documentation. The VAT returns, which need to include all the above transactions, would also serve the purpose of monitoring and controlling them.
The goods which fall within the scope of the ‘Traceability System’ are listed out below:
- Refrigeration and freezing equipment (refrigerators, freezers);
- Industrial trucks (forklift trucks, bulldozers, graders, planners, power shovels, excavators, shovel loaders, tampers in addition to road rollers);
- Washing and drying machines (household and for laundry facilities);
- Monitors and projectors (not including receiving television equipment);
- Electronic integrated circuits and elements; and
- Baby strollers and child safety seats.
Aspects that need to be in place for digital invoicing include concurrence of the parties to the transaction, digital signatures which need to pass through an encryption software, necessary technical equipment and software which must be located in Russia, and a certified operator termed as Electronic Document Exchange Operator (EDEO), who would be connected to a common system run by the Government, for transmission/ exchange of confidential information. The e-invoices generated by the authorized operator are in a standardized format created in a structured xml file, digitally signed (using a certification issued by the concerned government authorities), and would need to be preserved for 4 years, after the end of a particular fiscal year.
Fiscal Control is exercised by the Russian Tax Authorities by a periodical audit of a series of receipt acknowledgments exchanged between the operators who generate tax invoices. Electronic Certification and Documentation of the business relationship are enabled through the Contract, Certified Dispatch Advice, Invoice, and the above Acknowledgments.