Major amendments to the Tax Code of the Russian Federation have been adopted
Federal Law No. 389-FZ dd. 31.07.2023 adopted significant changes to the Tax Code of the Russian Federation, implementing the main provisions of the tax policy of the Ministry of Finance of the Russian Federation for 2024-2026.
In this review we will focus on the most important changes.
1. VAT on electronic services
According to the introduced amendments, foreign companies, e-service providers are required to be registered with the tax authorities only if they provide services to individuals. Now this requirement also applies to e-service providers in the B2B sector. The procedure for deregistration of foreign companies, if they continue to provide services, is still not regulated by law.
2.1. Exemption from VAT on the transfer of goods (works and services) for advertising purposes.
The limit of expenses for the acquisition or creation of a unit of goods (works, services) transferred for advertising purposes and exempted from VAT is increased from RUB 100 to RUB 300. The amendment shall enter into force from 31.08.2023.
2.2. The accelerated procedure of VAT refund by declarative procedure is extended until 2025. The amendment shall enter into force from 31.08.2023.
3. PIT (PERSONAL INCOME TAX)
3.1. PIT taxation of remote employees.
Income of a remote employee paid by a Russian company or a separate subdivision of a foreign company registered in the Russian Federation will be recognized as income from sources in the Russian Federation (sub-p. 6.2., p. 1, art. 208 of the Tax Code of the Russian Federation). The tax rate for non-residents on such income is set at the rate of 13% (15% on income over RUB 5 million per year). Now, no tax is payable on such income received by non-residents, as it is income from sources abroad. The changes will come into force from 01.01.2024.
Thus, the legislator actually equated the taxation of employees working remotely for Russian employers (regardless of the place where they perform labor functions) to the taxation of regular Russian employees. In accordance with the existing double taxation treaties, such income, if the employee is recognized as a tax resident of another country, is considered as taxable income in that other country. For those cases where the norms of the agreements are suspended, there is a risk of double taxation.
3.2. PIT taxation of remuneration received under civil law contracts.
Remuneration received by a taxpayer for works performed (services rendered), rights to use intellectual property, if the transaction is performed in the Internet, using a Russian domain zone, information system, Russian software and hardware complexes, is recognized as income from sources in Russia, provided that at least one condition is met:
the taxpayer is a tax resident of Russia;
income is received in an account in a Russian bank;
the sources of income payment are Russian companies, individual entrepreneurs, notaries engaged in private practice, lawyers who have established lawyer's offices, or separate subdivisions of foreign companies in Russia.
The tax rate is 13% / 15%. The changes will come into effect from 1 January 2025.
In addition, it is necessary to consider possible conflicts with DTT, if the recipient of income is a tax resident of another state.
3.3. Exemption from PIT on income in the form of forgiven debts
Amounts of obligations terminated in 2023 by the forgiveness of debt under a contract for the sale and purchase of shares (participation interests in the authorized capital) of a Russian company concluded after 1 March 2022, will be exempt from PIT, if the seller is a foreign company or a foreign citizen, who is not a tax resident of the Russian Federation.
3.4. The possibility of applying a property deduction at the sale/exchange/redemption of property rights is established. Previously, in tax legislation, property deductions were applied only to the sale of property, while the possibility of applying such deductions to the sale of property rights arose from court practice. The amendments shall come into force from 31.08.2023.
3.5. Foreign companies are tax agents for PIT purposes.
Foreign companies paying income to individuals under civil law contracts to bank accounts in Russia will be recognized as tax agents. To perform the functions of a tax agent, foreign companies must register with the tax authority no later than the date of the first such payment. The exclusion is the situation when funds are transferred through Russian companies; in this latter case the obligation of a tax agent is borne by these Russian companies. At the same time, subjects of the national payment system, banks, as well as telecommunications operators specified in Federal Law No. 161-FZ "On the National Payment System" dd. 27.06.2011 will not be recognized as tax agents. The amendments shall come into force on 01.01.2025.
4. Corporate income tax
4.1. Extension of the period of tax-free forgiveness of debts under a loan agreement.
The exemption from taxation of income in the amount of liabilities terminated by debt forgiveness under a loan (credit) agreement, the lender (creditor) under which as of 1 March 2022 was a foreign company or citizen, is extended until the end of 2023.
4.2. Tax-Free Debt Forgiveness in 2022 and 2023
In 2022 and 2023, the following debts may be terminated tax-free:
under an agreement for the sale and purchase of shares (stakes) of Russian companies signed after 1 March 2022, where the seller is a foreign company or citizen;
debts related to the payment of the actual value of a share to a foreign participant of a limited liability company upon withdrawal from the company or as a result of its exclusion from the company in 2022-2023.
In this case, in the event of further sale of these shares (participation interests), their value for the purposes of income taxation is recognized as zero.
4.3. The rule on loss carryforwards of no more than 50% of the current year's profit is extended until 2026.