What taxes you need to pay when displaying revenue from applications in Apple iTunes

The developers constantly ask us questions about taxes that should be paid when withdrawing funds to a Russian entity under an agreement with Apple. The cause of concern is the famous Google Tax, introduced since the beginning of 2017.

Therefore, we posted a free translation of the latest Apple Developer Program License Agreement Schedule 2 and prepared tax comments for it.

To whom it is interesting, we look further.

Taxes author-developer of the contract with Apple

So, we will consider at the beginning the simplest option, when a developer account is registered for an individual with no IP status.
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In this case, the developer, at the end of the fiscal year, submits a declaration of income, among which indicates the receipts to his Apple transfer account, and pays a legitimate 13% personal income tax from them. In this case, the developer does not care about how Apple pays taxes in the implementation of its applications, he does not pay VAT on the amount of commission Apple, and does not take into account the costs of such remuneration.

You may ask: Is it not considered systematic profit from the sale of applications by business activities and registration is not required as an IP? No, this rule does not always work.

Under Russian law, the receipt of income from creative activity does not require registration as an individual entrepreneur . Therefore, if the account owner is also the author of the applications that are implemented through it, no problems arise.

Another thing, if you use a developer account to implement other people's applications. In this case, we can talk about generating income in the framework of business activities, which require the registration of an IP or the creation of a commercial organization.

To avoid problems with confirming the authorship of the application before the tax, it is enough to receive in your name a certificate of state registration of the computer program .

Taxes for developers in the form of individual entrepreneurs and organizations under an agreement with Apple

1) VAT from the sale of applications and commission services

When registering a developer account on an IP or organization with Russian taxes, everything is much more complicated.

Recall that the amendments to the Tax Code (hereinafter - the “Tax Code”) from January 1, 2017 introduced the concept of “services in electronic form” and established the obligation to pay VAT on their cost, which is commonly called “Google tax”.

The number of services in electronic form on the basis of Article 174.2 of the Tax Code of the Russian Federation, among other things, included the following operations with residents of Russia:

1. the granting of rights to use programs for electronic computers (including computer games), databases via the Internet, including by providing remote access to them, including updates to them and additional functionality;
2. and the provision through the Internet of technical, organizational, informational and other opportunities provided by the use of information technologies and systems for establishing contacts and transactions between sellers and buyers (including the provision of a trading platform operating on the Internet in real-time, in which potential buyers offer their price through an automated procedure and the parties are notified of the sale by sending automatically cally generated messages).

The first relates to the sale of developer’s applications through iTunes, the second to the provision of services to the developer to sell such applications in this way.

As prescribed by law, Apple began to charge and pay VAT on sales of applications to Russian users in January 2017. In this connection, changes were made in Section 2 Exhibit A and Section 1 Exhibit B to the Apple Developer Program License Agreement Schedule 2. Now when implementing applications to users in Russia, Apple acts as a commissioner and is responsible for collecting and paying VAT in Russia.

Therefore, developers are not liable for tax payment of VAT on the cost of selling apps through iTunes. This is Apple’s responsibility, which the company recognizes and fulfills.

In addition, you can reduce the risk of tax liability for non-payment of VAT from the sale of applications to end users in the following way. The contract with Apple provides that a developer may submit to Apple his End User License Agreement (EULA) for any licensed application while providing such an application to Apple (Section 4.2. Schedule 2).

According to the Russian tax legislation, the amount of realization of rights to software under a license agreement is exempt from VAT (p.26 p.2 st.149 of the Tax Code of the Russian Federation) . Therefore, to exclude VAT, it is necessary that the terms of the EULA provided by Apple with the application comply not only with Apple’s requirements, but also with the provisions of the Russian legislation on software licensing agreements . In this case, there is no risk of additional VAT, fine and penalties from the exercise of rights to your applications, even if Apple does not pay VAT.

The next question is on the VAT, which should be paid from the commission of Apple.

Since the services of organizing the sale of applications through iTunes are referred to services in electronic form, Apple must pay VAT on the amount of the commission. However, Apple can pay VAT only on sales of services in favor of developers - individuals without the status of IP. In other cases, the company does not do this, since it has no representative office in Russia.

And here come into effect the provisions on the tax agent , established by paragraph 2 of Article 161 of the Tax Code. Russian organizations and individual entrepreneurs who purchase services in electronic form from a foreign organization that is not registered in Russia are required to calculate and pay VAT on the cost of such services.

In other words, developers of SP and organizations should withhold Russian VAT from 30% of Apple’s commission when paid to Apple .

However, the developer is deprived of this opportunity, because Apple lists the income from the sale of applications in iTunes minus its remuneration. At the same time, Apple provided in section 5 Exhibit D that the invoice should be limited to the amount that should be paid to you after the fact, including VAT and other taxes or fees mentioned above. You exempt Apple from claims from the competent tax authorities for failure to pay such sales tax, use tax, tax on goods and services, VAT or other tax or levy, and from paying fines and penalties for non-payment.

In other words, Apple should receive a net 30%, and the obligation to pay taxes imposed on you. With this in mind, VAT should be charged on top of 18% of the amount of the commission withheld by Apple.

2) Profit tax and income tax on USN

Another issue that concerns developers in the form of entrepreneurs and organizations is the definition of the tax base from the implementation of applications through iTunes. As we stated above, Apple sells developer apps as a commissioner.

Therefore, the entire amount of payments Apple collects from end users is considered your revenue / income for tax purposes. Detailed explanation below.

According to Article.249 of the Tax Code of the Russian Federation, revenue from sales is recognized as revenue from the sale of property rights. At the same time, sales revenue is determined on the basis of all receipts related to settlements for realized property rights, expressed in monetary and (or) in-kind forms.

In accordance with Art. 990 of the Civil Code of the Russian Federation (hereinafter - the “Civil Code of the Russian Federation”) under a commission agreement, one party (commission agent) undertakes, on behalf of the other party (committent), for a fee, to perform one or more transactions on its own behalf, but at the expense of the committent.

In this case, according to paragraph 1 of Art. 996 of the Civil Code of the Russian Federation, items received by the commissioner from the committent or acquired by the commission agent at the expense of the committent are the property of the latter.

Articles 999, 1000 and 1001 of the Civil Code of the Russian Federation stipulate that upon execution of an order, the commission agent is obliged to submit a report to the committent and to transfer to him everything received under the commission agreement. The committent shall be obliged to accept from the commission agent everything that was fulfilled under the commission agreement and release the commission agent from the obligations undertaken by him to a third party in the execution of the commission order. In addition to this, the committent shall be obliged, in addition to paying the commission and, in appropriate cases, additional remuneration for the del credere, to reimburse the commissioner for the amounts spent by him for the execution of the commission order.

With this in mind, the commissioner's income from commission operations from the sale of applications is recognized by the commissioner as the entire amount received from the sale of property rights under commission agreements, including the commissioner's commission .

At the same time, organizations and individual entrepreneurs on the general taxation system are entitled to reduce the income tax base by the amount of expenses to which the commission applies (subclause 3 of clause 1 of article 264 of the Tax Code of the RF).

It is important that such expenses must be documented . Apple does not provide reports required by Russian civil law under a commission agreement. However, this should not be an obstacle to the inclusion of Apple's commission in the costs, since the latter is charged according to the rules of the international contract.

According to Clause 1, Article 252 of the Tax Code of the Russian Federation, documented expenses are understood as including expenses confirmed by documents drawn up in accordance with the customs of business turnover used in a foreign country in whose territory the corresponding expenses were incurred and (or) documents indirectly confirming the expenses incurred. Costs are recognized as any costs, provided that they are made for the implementation of activities aimed at generating income.

Taking into account the above method of calculating the tax on profit, the tax of individual entrepreneurs and organizations on the simplified tax system is considered.

In the case of the use of USN income, tax is calculated on the entire amount of revenue, including the commission of Apple. When paying tax on USN income minus expenses, the amount of commission is excluded from the tax base on the basis of pp.24 clause 1 st.346.16 of the Tax Code.

findings

Under normal conditions, when selling applications through iTunes, the lowest taxes are paid by the developer-author without the IP status. Then comes the PI and the organization on the simplified tax system (income), then the simplified tax system (income - expenses). At the last place of the organization and IP on the ESS. The input VAT from the amount of commission on OSNO is usually not credited, since the implementation of computer programs on the territory of Russia under license agreements is exempted from VAT on the basis of paragraphs.26 of paragraph 2 of Article 149 of the Tax Code of the Russian Federation.

A source