Changes in the tax system of the Russian Federation may come into force from 2025. They propose a five-stage personal income tax scale, an increase in corporate profit tax rate to 25% and the cancellation of the zero tax rate of the corporate profit tax for IT companies.
The bill on changes to the tax system of the Russian Federation proposed by the Ministry of Finance is now under consideration in the State Duma and may be adopted as early as the spring session (until August 4, 2024).
Link: https://sozd.duma.gov.ru/bill/639663-8
Among the main changes proposed by the bill are the following.
– Personal income tax (PIT): change of rates
At the moment, for labor income in Russia there is a progressive PIT scale with two rates: 13% (for income up to 5 million RUB per year; or appr. EUR 50,000) and 15% (for income above 5 million RUB). In addition, a 30% rate is applied in certain cases for tax non-residents.
The bill introduces a five-stage progressive PIT scale. The prime rate remains at the level of 13%, but the limit of its application is reduced to 2.4 million RUB (appr. EUR 25,000) per year, from the excess of which the tax is paid at the rate of 15-22%:
– 13% for income below 2.4 million RUB per year (EUR 25,000);
– 15% – from 2.4 to 5 million RUB (EUR 25,000 – 50,000);
– 18% – from 5 to 20 million RUB (EUR 50,000 – 210,000)
– 20% – from 20 to 50 million RUB (EUR 210,000 – 530,000);
– 22% – over 50 million RUB (above EUR 530,000).
Taxes at the increased rate will be levied only on the amount exceeding each previous threshold. That is, a person with an annual income of 6 million RUB or appr. EUR 63,000 (500,000 RUB or appr. EUR 5,300 per month) will pay 13% on the first 2.4 million RUB, 15% on the next 2.6 million RUB and 18% on the remaining 1 million RUB. In total, compared to the current rates, such a person will pay an additional 82,000 RUB (appr. EUR 900) of tax per year at an effective PIT rate of 14.7% (instead of the current 13.34%).
The draft law does not provide for any threshold of minimum income not subject to PIT.
With respect to income received by non-residents – highly qualified specialists (HQS) from labor activity in Russia, PIT will also be paid according to the above progressive scale. Otherwise, the base rate of 30% will continue to be applied to the income of non-residents with a number of exceptions (e.g., 15% on dividends).
– PIT on non-labor income
The current rates – 13 and 15% without further progression – will be retained when taxing income from dividends and deposits, as well as from the sale of shares. However, the 15% rate will apply to income over 2.4 million RUB (not 5 million RUB, as now).
The same approach will be applied to PIT from the sale of real estate: 13% up to the amount of 2.4 million RUB, 15% – above this amount. Currently, the 13% rate is applied regardless of the amount of income from the sale of real estate.
It is also envisaged that there will be a limited exemption from PIT on the sale of shares in a business where the period of continuous ownership exceeds five years: the exemption will not apply to income over 50 million RUB (in respect of the excess).
– Change in the rate of corporate profit tax
The corporate profit tax rate is proposed to increase by 5% from the current 20% to 25%. The withholding tax rate will also increase to 25%, with a number of exceptions, for example, income in the form of dividends or from the provision of intra-group services will continue to be taxed at 15%, and income from international transportation will be taxed at 10%.
– Cancellation of zero profit tax for IT companies
Currently, IT companies which have received special accreditation and receive at least 70% of their revenue from the development and sale of software are entitled to apply a zero rate of corporate profit tax.
The bill proposes the introduction of a profit tax rate of 5% for the period from 2025 to 2027.
– Changes to the simplified taxation system
Currently, small and medium-sized companies have the right to apply the simplified taxation system in certain cases. The main criteria for application are annual revenue not more than ~265 million RUB (appr. EUR 2.8 million), number of employees up to 100 people and residual value of fixed assets – not more than 150 million RUB (appr. EUR 1.6 million). Companies that fulfill these conditions should not pay corporate profit tax, property tax and VAT. Instead, they pay a unified tax at the rate of 6% (for cases when the tax base is revenue) and 15% (if the tax base is revenue reduced by expenses). In certain cases, the rates of 8% and 20% respectively apply.
The bill raises the established limits for the application of the simplified taxation system: the revenue limit is raised to 450 million RUB (appr. EUR 4.8 million), the threshold for the residual value of fixed assets – up to 200 million RUB (appr. EUR 2.1 million). The increased tax rates of 8% and 20% will also be canceled.
However, the bill introduces new conditions for companies with revenues of more than 60 million RUB (appr. EUR 650,000) per year: such companies will be obliged to pay VAT. The bill provides for two options: paying VAT at the general rate of 20% (10% for some goods), but with the right to tax deductions, or without the right to deductions, but at the rate of 5% for revenues up to 250 million RUB (appr. EUR 2.7 million) and 7% for revenues from 250 to 450 million RUB (EUR 2.7-4.8 million).
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At the moment, it is still possible that point-by-point amendments will be made to certain provisions to “fine-tune” the draft. Many business associations and other interested parties have already submitted their proposals to the draft. In particular, the Russian Union of Industrialists and Entrepreneurs has put forward its proposals. We recommend monitoring the draft law at all stages of its adoption in order to be able to timely assess the consequences of the tax changes it introduces and take them into account in budgeting and planning for 2025 and subsequent periods.