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Law “On advertising”: when will your company have to pay?

On 26th of December 2024, the Federal Law ‘On Amendments to the Federal Law “On Advertising” and Certain Legislative Acts’ was published.

The provisions of the law providing for an additional fee for advertising distribution will come into force on 1st of April 2025.

Who is obliged to pay/calculate and transfer the fee to the budget?

1. Advertising distributors

2. Persons performing actions for the purpose of advertising distribution on behalf of the advertiser and at the advertiser's expense

3. Operators of advertising systems

4. Russian advertisers (legal entities, IE, citizens of the Russian Federation) concluding a contract with foreign persons (companies, citizens) for the distribution of advertisements, if the advertisement is aimed at consumers in the Russian Federation and is distributed via the Internet.

What is the essence of the obligation?

The advertiser becomes a tax agent: he is obliged to withhold 3% of the foreign counterparty's income under the contract for the quarter and transfer the fee to the budget. 

Calculation base: a foreign person's income from advertising services for the quarter.

The criteria for advertising directed at Russian consumers have not yet been defined, they will be approved by the Russian Government.

This levy is in fact a turnover tax, an excise tax on advertising distribution services.

Our comment:** from a legal point of view, such a levy is detrimental to the unity of the tax system, as it is not formally a tax - the deputies voted against the amendments to the Tax Code of the Russian Federation, leaving the levy outside the Code. 

The organisation of the introduction of a new fiscal payment of a non-tax nature raises questions. Why? 

1. for the first time, the functions of a tax agent can be performed by individuals

2. distributors of advertising on websites whose founders have a share of state or municipal property are exempt from paying the fee (what about the ban on differentiation of tax rates depending on the form of ownership?)

3. control measures taken by Roskomnadzor have not been established 

What are the consequences of the innovations?

1. Russian advertisers are obliged to inform foreign advertising partners about the transfer of the levy. This circumstance will require adjustments to existing contracts with foreign counterparties

2. Increase in advertising costs, which is particularly noticeable for small and medium-sized businesses. Foreign partners will take into account additional deductions when determining the cost of their services

3. In case of violation of the fee calculation or its non-payment, fines will follow in accordance with the Code of Administrative Offences of the Russian Federation (so far no specific sanctions have been established, most likely the articles on violation of advertising legislation will be applied).

What are the recommendations for advertisers?

In connection with the changes, Magenta Legal lawyers recommend auditing current contracts, namely, to check whether there are contracts with foreign advertising platforms or contractors, as well as to include clauses in the contracts on the distribution of responsibility for the payment of the fee. As part of budgeting, it would not be superfluous to calculate how the increase in costs will affect the profitability of advertising campaigns and to set aside additional advertising costs.

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