08.08.2005 - Federal Law on ?Changes to Chapter 21 of the Tax Code of the Russian Federation and abolishment of several laws on taxes and levies? dated 22.07.2005 N 119-FZ, effective in most part from 1 January 2006 and in some parts from 1 January 2007 has introduced material changes to VAT ruling.

The most important are:

1. Cash method for VAT payment moment determination will become inapplicable. For operations dated after 31 December 2005 only accrual method will be applied. VAT will be payable in the period of sale or receipt of payment whichever is the earliest. Consequently, it will be permitted to offset input VAT upon receiving an invoice and without payment. For operations started before 1 January 2006 a two years transitional period is allowed, during which VAT ruling effective on the date of starting the operation will be applied.
2. The legislature specified the rules for VAT recover in cases of changing the tax regime or initial purpose for the acquired goods (works, services), e.g. sale of equipment received as contribution to charter capital.
3. Special rules were introduced for offset of input VAT related to capital investments. Output VAT will be allowed to be accrued monthly with the relevant input VAT offset. VAT recover, required in case of removing the object of capital investments from VATable activity or transfer to any of the special tax regimes, may be allowed to be made by installments throughout 10 years.
4. Taxpayers may be relieved from VAT payment provided they receive not more than 2 mln. (formerly 1mln) of revenue a quarter.

To be continued