Russia: Review of special tax regimes of Russia

Special tax regime is a system of special rules of taxation which can be applied, for some categories of companies, permanently or temporary according to tax code of Russian Federation. Management of companies usually has a choice whether to apply these rules or use a standard system of taxation. If the company will apply special rules of taxation then automatically it receives exemption from some taxes, which are mandatory in a context of standard tax system (for example exemption from income tax, VAT or property tax). 

There are 5 special tax regimes in Russia. They are: simplified taxation system, unified agricultural tax, unified imputed earnings tax, patent tax system and production sharing agreements. 

First regime is called simplified taxation system. It can be applied by small and medium enterprises in order to stimulate its growth and development. Tax rules of this regime are not as harsh as standard tax system, but there are lots of restrictions and criteria which company should maintain in order to use it. 

Here is brief overview of this regime. 

1. Company qualify for full exemption of VAT, income tax, payroll taxes, transport tax, excise duty, land tax. 

2. Company pays only 6% tax from all its revenues or 15% tax from profit, the management should decide which one is better for the company. If the company elect for 15% tax from profit than minimal mandatory tax cannot be less than 1% of revenue. This 1% tax is payable even company incur losses. 

3. In order to apply for it, company’s revenue for last 9 months should be less than 45 million rubles (1.5 million dollars approximately). There are lots of other restrictions. Most significant are: organization should have less than 100 employees, net book value of fixed assets should be less than 100 million rubles, and organization should be 75% controlled by physical persons (25% can belong to other organizations). So such organization cannot be a subsidiary, but can be an associate of foreign corporation. 

Second tax regime is unified agricultural tax. This tax regime is for organizations in the business of producing or processing grain, milk or other agricultural produce. However size of company or capital structure is not clearly defined, main restrictions are number of employees (less than 300) and revenue structure (70% of revenue should be generated from sale of own agricultural produce). The term ‘own agricultural produce’ refers to produce as a result of biotransformation of assets controlled by company, and not merely purchase and resale. 

Brief overview of this regime is as follow: 

1. Company qualifies for full exemption of VAT, income tax, property tax. 

2. Company pays only 6% tax from all its profits. In case of losses, company can accumulate it for tax purposes and set-off against future profits for 10 years. 

3. Company can be a subsidiary of foreign enterprise 

Third and fourth tax regimes (unified imputed earnings tax and patent tax system) are for small businesses of certain business activities. These include taxi drivers, professional teachers, cleaning services, guide services etc. Such businesses enjoy exemption of all taxes but pay a tax from potential income called ‘imputed earnings’. Patent tax system and unified imputed earnings tax differs in accordance to nature of business activity and method of computation which refer as ‘imputed earnings’. Tax rate is 6% which is ‘imputed earnings’ in a patent system and 15% in a unified imputed earnings tax regime. 

Last tax regime is called product sharing agreements (PSA). This tax regime is for foreign companies which involve in exploration and development of mineral recourses in Russia. In order to be in this tax regime, the foreign company should conclude special agreement with government of Russian Federation. New business entity will be incorporated and jointly controlled by Russian government and foreign investor. Such business entity will enjoy receive a lot of tax preferences among others the exact tax rates, tax base calculation methods and exemptions are stipulated in the agreement.

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