Russia Adopts IT Tax Maneuver

On June 23, 2020, the President of the Russian Federation advised the nation about new measures supporting the Russian financial system amid the pandemic of COVID-19. Specifically, he introduced a plan to help IT firms by a significant discount of taxes on them.

In response to Mr. Putin, it’s deliberate to cut back revenue tax on IT firms from 20% to three% and necessary social insurance coverage premiums from 14% to 7.6%. He additionally famous that when these measures are carried out, the tax charges will likely be among the many lowest on this planet, and on this regard, he in contrast Russia with India and Eire.

Furthermore, the President stated that the Authorities of the Russian Federation would think about new measures of financial help for IT and associated firms.

A number of weeks later, in Innopolis (the Republic of Tatarstan), a panel dialogue was held with the participation of representatives of the IT business, the place the Prime Minister of the Authorities of the Russian Federation, Mikhail Mishustin, took the ground. In his speech, Mr. Mishustin raised the difficulty of the proposed advantages of the President’s “tax maneuver”, and specified that advantages will likely be supplied to Russian firms for which 90% of their revenue is from the sale of software program and providers for its improvement, help, and cloud providers.

On July 10, 2020, the Ministry of Finance of the Russian Federation (Minfin) ready legislative amendments to tax laws on conducting the “tax maneuver”. Together with decreasing the revenue tax and necessary social insurance coverage premiums for IT firms, the Minfin proposes to determine such advantages additionally for the businesses which can be engaged within the design and improvement of digital part base and digital (radio-electronic) merchandise and included within the corresponding register. This register will likely be maintained by the Ministry of Business and Commerce of Russian Federation (Minpromtorg). As effectively, the Minfin is making ready mechanisms for added incentives for the home IT business, which embody each direct help for firms to introduce improvements and launch startups, stimulate demand, develop PPP partnerships, and improve workers capability on this business.

The adoption of the invoice concerning the President’s “tax maneuver” was not lengthy in coming. Thus, the invoice handed all the required phases for its adoption and was printed on July 31, 2020.

In response to the invoice, it makes the next amendments to the Tax Code of the Russian Federation (Tax Code):

Worth-Added Tax (VAT)

The amendments take care of (i) unique rights to software program and databases included within the register of home software program, and (ii) rights to make use of the software program and databases that will likely be exempted from VAT.

The rights to make use of could be transferred by concluding a license settlement and by offering distant entry to software program and databases through the Web.

Exemption from VAT is not going to apply to the switch of rights to make use of software program and databases, if these rights pertain to the next:

– distributing promoting on the Web or get entry to it;

– posting on the Web of presents for the acquisition or sale of products, works, providers, and rights; or

– trying to find details about potential patrons and sellers or conclude offers.

Earnings Tax

Earnings tax charges for IT firms will likely be diminished. The charges will likely be as follows:

– 3% tax to the federal price range for firms that develop, set up, check, keep and promote their software program and databases; and

– 0% tax to the regional price range for firms which can be engaged within the design and improvement of digital part base and digital (radio-electronic) merchandise.

Additionally, to use the diminished charges, IT firms should meet the next necessities:

– the corporate must be included within the particular register as an organization that operates within the discipline of IT;

– the corporate’s revenue from operations within the discipline of IT in response to the outcomes of the tax interval must be not less than 90% of the whole revenue; and

– the common workers quantity must be not lower than seven folks.

Obligatory Social Insurance coverage Premiums

Obligatory social insurance coverage premiums will likely be diminished from 14% to 7.6% for IT firms that meet the identical necessities as for the businesses making use of the diminished revenue tax charges (please see the necessities for (2), above).

It must be famous that the entire above amendments to the Tax Code will enter into pressure on January 1, 2021. Within the interval earlier than the desired date, state our bodies or officers might undertake any further acts on this regard.

Alexander Zharikov contributed to this text.