Difficult to translate distribution agreements

The main issues encountered in importing foreign software concern the legality of applying VAT exemptions and customs clearance.

In terms of an international contract provided by a vendor, it is often referred to as “supplying” software with the right to promote and resale (market and sell). Although, in fact, the parties agreed to purchase a software license for its transfer to the end user. Further, the conditions for the delivery of keys, disks and printed documentation may follow, although all this can be obtained via the network.
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What is the result of such wording of the contract?

First, regardless of the tax system used by the distributor (simplified or general), it becomes necessary to pay VAT for a non-resident when transferring remuneration under a distribution agreement.

Secondly, when delivering dongles or CDs with software distribution kits, it is not clear how much to declare at customs and whether customs clearance is required for e-delivery without transferring any tangible media.

Read on for an affordable solution.

So, to resolve issues will require the localization of an international contract. On the one hand, it is necessary to bring the contract into compliance with the requirements of Russian legislation, in effect changing the type of contract. On the other hand, you will need to convince the vendor to accept these edits as minor.

The task is not easy, but you can cope with it in a few steps, if you arm yourself with knowledge.

VAT exemption

Let's start with the main thing. For exemption of payments under the contract from the Russian VAT it is necessary that it meets all the requirements of the license agreement under Russian law.

From the point of view of tax law, the implementation of the right to use programs under a license agreement is exempted from VAT payment (clause 26 of clause 2 of Article 149 of the Tax Code of the Russian Federation), as opposed to selling software as a product under a supply agreement. First of all, the choice of a specific type of contract is connected with this circumstance. More information about this can be found in the VAT article on operations with computer programs and databases .

The concept of “licensing agreement” is not disclosed in tax legislation. Therefore, we must use the conditions of civil law, which puts forward 3 basic requirements for a license agreement:

1) An indication of how to use the software;
2) Coordination of the size of license remuneration;
3) Determination of the object of licensing.

Other conditions are optional. Let's leave them aside as irrelevant.

At first glance, the distribution agreement has the necessary conditions for the permitted use of the software: the distributor is granted the right to offer software for sale and its sale (market and sell). However, this is a mistake. To obtain a full license, you must enter into the contract additional rights, the composition of which depends on the method of subsequent provision of software to end users.

If foreign software is imported into Russia on tangible media, the rights to import and distribute copies of the software will be required. If the parties have agreed on an electronic shipment, at least the right to reproduce the software is required. In addition to this, electronic delivery, as a rule, requires permission to enter into a sublicensing agreement with the end user.

Next, you need to clarify the terms of the agreement on license remuneration. The vague wording about “cost payment” or “revenue sharing” is not appropriate here. They should be specified in terms of the license agreement: it is necessary to indicate that all payments under the distribution agreement constitute a license reward for the granted right to use the software.

In conclusion, the distribution agreement must clearly indicate the licensed software (for example, in the annex to the contract) or establish a method for its approval (for example, by referring to an invoice).

Customs clearance

Now about customs clearance. Foreign software distributors often have trouble asking for customs clearance.

For simplicity, we refer to the explanations given in due time by the Federal Customs Service in a Letter dated March 17, 2006 N 15-14 / 8524 “On Customs Clearance of Information Transmitted via the Internet”.

In it, the Federal Customs Service stated that the legislation "does not include the transfer of information products via electronic communications to the international information exchange." At the same time, the importation (exportation) into (c) the territory (and) of the Russian Federation of information products is understood exclusively as “the movement of information (documents) on a tangible medium”.

Therefore, in relation to software or any other information products there are no classification codes and rates of customs duties.

With this in mind, the Federal Customs Service has concluded that “it is not information (computer program, mobile content) that is transported to the International Internet using fiber-optic communication or satellite communication channels, but goods transported through the customs border of the Russian Federation are subject to customs clearance. The specified information, i.e. material carrier (laser disk, diskette, cassette, etc.). "

The regulations specified in this letter have ceased to exist, however, the logic of modern legislation and law enforcement has been preserved.

So at the present time in the Customs Code of the Russian Federation, a commodity is directly understood as movable property moving across the customs border, including information carriers (paragraph 35 of paragraph 4 of Article 4 of the Labor Code of the Russian Federation).

Accordingly, customs clearance is not carried out in the case of electronic distribution of software distributions over the network. At the same time, the delivery of software on tangible media requires compliance with all necessary customs procedures. However, only the cost of tangible media can be indicated in the declaration, and the software itself can be transferred under a licensing agreement to pay the license fee without VAT.

Therefore, in order to avoid confusion in matters with customs and tax authorities, it is necessary to clarify the terms of the distribution agreement. Localization of the contract does not change the subject matter of the agreement, but significantly simplifies the conduct of business.