Raising the VAT Rate to 22%: What to Consider Now

Draft Law containing a significant number of amendments to the Tax Code of the Russian Federation has been submitted to the State Duma for consideration.

One of the key changes is the increase in the standard VAT rate from 20% to 22%. The rate for socially important goods (food, medicines, children's goods, etc.) in the amount of 10% remains unchanged. If the Draft Law is adopted, the 22% VAT rate will apply from 2026.

Transitional rules have not yet been defined

The Draft Law does not contain any special transitional rules explaining the application of the new VAT rate. In particular, there is no clarification regarding the situation when the advance payment and shipment of goods (works, services) were carried out during periods when different rates were in effect, as well as the application of the new rate to ongoing contracts. Explanations from relevant bodies have not yet been published either. By analogy with the transition to the 20% rate in 2019, the rules set out in the Letter of the Federal Tax Service of Russia dd. 23.10.2018 No. СД -4-3/20667@ are likely to apply.

How can 22% rate apply?

If the prepayment is received before 2026, and the delivery of goods (works, services) as well as signing of the relevant closing documents will take place only in 2026, the seller will be required to charge VAT at the rate of 22%. At the same time, VAT previously accrued from the prepayment at the rate of 20% can be deducted, but the amount of tax to be transferred to the budget will increase. Therefore, it is advisable to estimate the possibility of closing the supply and signing the supporting documents before the beginning of 2026 in order to fix tax liabilities at the current rate.

How to prepare for the changes currently?

• Check the terms of contracts with suppliers and buyers regarding the wording of VAT charges, applicable rates and make appropriate amendments to the contracts if necessary.
• Analyze the provisions of the ongoing contracts and assess whether the terms of the contracts allow the additional 2% VAT to be charged to the buyer, or the tax should be paid from the agreed price, reducing marginality.
• Reconfigure accounting systems so that transactions are subject to a new VAT rate of 22% starting from 2026. 
• It is advisable to review budgets and the financial model to consider the impact of the new rate on cost, marginality and prices.

An increase in the VAT rate is a significant issue for all VAT payers. Timely preparation will help to avoid technical errors, tax gaps, fines, disputes with counterparties, and the need for urgent adjustments to contracts.

SCHNEIDER GROUP Tax Team will continue to monitor the progress of the Draft Law adoption and publication of official explanations, and is ready to provide you with support in analyzing the impact of changes in tax legislation on your business.