Can IP work with VAT? Taxes in Russia

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Many newly registered entrepreneurs have a question: "Can IP work with VAT?". There are many nuances of applying this tax, including individual entrepreneurs. If you try to answer the question briefly, then you should definitely say: "Yes! They can." But in what cases - it is worth considering in more detail.

SP on OSNO

According to the law, individual entrepreneurs are subject to VAT, as well as organizations, in the case when they apply the OSNO.

Individual entrepreneurs are tax payers in respect of their actions carried out for profit, that is, as a result of commercial activities. As well as enterprises, an individual entrepreneur, a VAT payer, must register with the tax authority and at this moment has the right to choose the USNO as a taxation system by submitting an appropriate application. If such a statementself-employed does not file on time, he automatically becomes liable to pay tax and remains on the BASIC.

SP on UTII

An entrepreneur can also avoid paying if he becomes a payer of UTII and UAT, but only to the extent of the employment that is the basis for the application of UTII. If an individual entrepreneur of the Russian Federation conducts several types of activities, he will have to conduct separate accounting for each and may turn out to be VAT payers for some.

Exception

At the same time, even those individual entrepreneurs who pay UTII in the situation of importing products and commodity groups to the territory of the Russian Federation from abroad are required to pay tax on such goods.

USN for IP

If an individual entrepreneur is on the STS, but for 3 calendar months his profit exceeded 2 million rubles, he automatically loses the opportunity to use the STS and becomes a payer of value added tax.

Thus, an individual entrepreneur will be able to use the exemption from the need to pay, having insignificant turnovers. As soon as its revenue exceeds the legal limit of two million, the IP is automatically transferred to OSNO and becomes a VAT payer.

Such rules are provided by the simplified tax system for individual entrepreneurs and organizations. He will be able to return the possibility of applying the tax exemption only in the next calendar year, if he sends an appropriate application to the inspection and attaches papers that can confirm that he has the opportunity toapplication of USNO. These documents are:

• sales book;
• copy of income and expense ledger;
• copy of invoice journal.

If, according to these documents, the revenue for any three cumulative months of the reporting period did not exceed two million rubles, the question of whether individual entrepreneurs can work with VAT will be decided negatively. The individual entrepreneur regains the opportunity to use the simplified taxation system for the next 12 months and, therefore, ceases to be a VAT payer. The application and the required papers must be submitted to the inspection no later than October 20 of this year in order to provide an opportunity for the STS for next year.

Sale of excisable products

When trading in excisable products, an individual entrepreneur pays the value added tax of the Russian Federation, regardless of what tax regime he is in. In following tax legislation, such products for individual entrepreneurs are:

• tobacco products;
• cars and motorcycles with engines over 150 hp. p.;
• gasoline, diesel. fuel, engine oils;
• aviation kerosene, natural gas.

Despite the fact that alcohol is also included in the list of excisable products, it makes no sense to mention it when talking about individual entrepreneurs, since since 2014 it has been forbidden for individual entrepreneurs to sell alcohol, regardless of what type of taxation they are on. This norm is enshrined in law.

Value added tax, concessions

Law provides for a range of optionsbusinesses that are not subject to VAT. Accordingly, if an individual entrepreneur conducts any of these activities, he does not need to pay tax. VAT exemptions are divided into mandatory ones, which cannot be applied. In the case of such activities, the question of whether individual entrepreneurs can work with VAT will be resolved negatively. But there are also so-called tax preferences, namely voluntary benefits, which the taxpayer can decide to apply or not.

Mandatory Benefits

The following business options are subject to the mandatory non-application of VAT:

• Temporary use of buildings to foreign countries or their residents.
• Trade, production of vital medical products, components, according to the list approved by law.
• Provision of services for medical diagnosis, prevention, treatment and rehabilitation, this list does not include veterinary clinics and cosmetology clinics.
• Provision of care services for those in need of care, pregnant women, the disabled, the elderly and children.
• Passenger transportation by urban, suburban and intercity road, rail, river and sea transport, except for taxis and fixed-route taxis.
• Provision of services and performance of works provided by funeral agencies.

VAT preferences

Voluntary benefits may or may not be used by the SP at its sole discretion. It is not always advisable to use the possibility of non-application of VAT forentrepreneur, some taxes in Russia give their pluses.

Often large contractors subject to OSNO do not conclude contracts with enterprises and entrepreneurs exempted from VAT. Because such cooperation will deprive them of the opportunity to exercise their right to apply the deduction for purchased products. Sometimes, in order to attract profitable counterparties, an entrepreneur deliberately refuses to exempt VAT. In the following areas of business, such a situation may occur. VAT preferences apply to:

• Production and trade of products for religious purposes. These are, for example, religious literature, religious objects.
• Provision of services and production of goods produced and sold by an individual entrepreneur with a disability, or in situations where the number of disabled employees working for an entrepreneur in the aggregate exceeds 80 percent.
• Manufacture and trade of folk arts and crafts, which are on special lists of local authorities.
• Insurance of various types.
• Law offices.
• Ticket sales for movie screenings, concerts, mass entertainment events.
• The work of developers, the sale of residential premises or shares in them.

VAT rates

If an individual entrepreneur turns out to be a VAT payer, he will have to pay tax to the budget at one of the three approved rates. There are taxes in Russia that have several options for rates, VAT is one of them. In most cases, the VAT rate is 18%. It works in allsituations, unless otherwise provided by law.

Bet 0 %

0% is applied when products are exported outside the country in the export mode, as well as in relation to a number of activities:

• transportation of oil and gas outside the borders of the Russian Federation through pipelines;
• transportation of passengers by suburban rail or air transport, when one of the destinations is located in the Republic of Crimea;
• customs transportation services;
• products imported into the territory of the Russian Federation by representative offices of foreign states, duly accredited in Russia, provided they are used in the interests of diplomatic missions and families of diplomats for personal needs.

Bet 10%

A rate of 10% applies to an exhaustive list of products that include:

• essential food items;
• products made for children;
• all printed periodicals, except those containing an erotic or promotional aspect;
• pharmaceuticals and medical products, except for vital ones, completely exempt from VAT;
• breeding cattle.

All other products and services not included in the above groups are subject to VAT at the rate of 18%.

Pros and cons of applying VAT

For individual entrepreneurs, the use of VAT carries much more minuses than pluses. Among them, it is worth noting such significant negativemoments like:

- The difference in the methods of recognition of income and expenses for personal income tax and VAT. If organizations, when paying income tax, can choose the method of recognizing income and expenses and thus bring accounting for two taxes closer, IP does not have such an opportunity. The tax legislation clearly states that income and expenses for the purpose of taxation of personal income tax must be applied for payment, and for VAT purposes - for shipment. That is, in fact, there will be such a situation when in different accounting registers individual entrepreneurs will have different data at the end of the reporting quarter. This greatly confuses and complicates the work of accounting.

- Mandatory electronic VAT reporting, introduced since 2014 for enterprises of all forms of ownership, will also complicate the work of the accounting service and the IP itself. If tax declarations for USNO and other special regimes can still be submitted on paper, then the application of VAT automatically entails additional costs of money and time. It will be necessary to conclude an agreement for the transfer of data via telecommunication channels with a special operator, prepare an entrepreneur’s digital signature, install additional software, ensure the availability of the Internet at the workplace of an accountant or entrepreneur, which, most likely, will require an agreement with a communication service provider and additional costs.

- The complexity and cumbersomeness of the tax declaration also does not make the job easier. The VAT declaration will have to be submitted quarterly, within the same time frame and tax must be paid. In addition, the inspection is more closelymonitors the reporting of enterprises and individual entrepreneurs paying VAT. This is due to a large number of violations in the field of VAT taxation.

VAT benefits

The advantages of using VAT by an individual entrepreneur include perhaps more willing cooperation of large customers with VAT payers because of the possibility to apply deductions. This is especially true for government contracts, large contracts in strategic areas of the economy.

If an individual entrepreneur plans to participate in such activities, the amount of contracts can cover all the above disadvantages. In addition, the fact of applying VAT allows the entrepreneur to take into account the incoming VAT as a tax deduction, interacting with VAT payers not only on sales transactions, but also on purchase transactions.

VAT tax return

VAT declaration for individual entrepreneurs exists in several versions. This is:

• VAT declaration for IP on OSNO.
• Declaration for individual entrepreneurs for VAT on special. tax regimes.
• VAT declaration for indirect taxes.

In the first situation, a standard VAT return is submitted. Since 2014, it must be submitted only in electronic form. In the situation of detection of errors after the submission of the declaration, a clarification should be sent to the inspectors immediately when these errors are discovered. A declaration is submitted quarterly by the 20th, provided that the amount of revenue excluding VAT for the last quarter was not more than one million. In other options, the declaration is sent to the taxorgan monthly also until the 20th.

VAT declaration while on special taxation regimes is sent to the tax authorities in the option of selling excisable products or in the option of conducting several types of activities. One of which is subject to special mode, while the other(s) do not. Such a declaration is also submitted electronically by the 20th.

Declaration on indirect taxes is submitted when selling products in the zone of the customs union. That is, when exporting products to the territory of Belarus. Such a declaration is submitted to the inspection after the importation of products, along with an application for importation. In the option when an individual entrepreneur works with organizations in Belarus, the question of whether an individual entrepreneur can work with VAT is resolved unambiguously positively. A declaration is submitted before the 20th day after the products are credited to accounting. This type of declaration cannot be modified. In case of detection of errors and shortcomings, another application for import is submitted.