15.07.2024
Tax Reform in the Russian Federation
On 10 July 2024, the State Duma adopted in its third reading significant changes to the Tax Code of the Russian Federation (the RF TC), which will increase the tax burden for both businesses and individuals. The amendments will have long-term effects on the economy of the Russian Federation.
The most significant changes, which will take effect on 1 January 2025 can be summarized as follows:
- A five-stage progressive personal income tax scale will be introduced
- The profit tax will be increased to 25%
- Taxpayers under the Simplified Tax System with an income of more than RUB 60 million will have to pay VAT.
Personal Income Tax (PIT)
A five-stage progressive PIT tax scale is to be introduced for the following groups of income with the following rates:
- Less than RUB 2.4 million –13% (as previously)
- Between RUB 2.4 million and RUB 5 million – 15%
- Between RUB 5 million and RUB 20 million – 18%
- Between RUB 20 million and RUB 50 million – 20%
- More than RUB 50 million – 22%
The increased tax rates will be applied not on the entire amount of income, but only on the amounts of income exceeding the relevant thresholds.
For dividends, interest income on deposits, income from transactions with securities, digital financial assets, and sale of property as well as other passive income, the PIT rate will be 13% for amounts of up to RUB 2.4 million and 15% for amounts exceeding this amount.
Profit Tax
The fixed basic profit tax rate is increased from 20% to 25%.
From 2025, there will be no 0% tax rate for IT companies. For the time period until 2030, IT companies will pay income tax at the rate of 5%. For companies that purchase Russian software, the increasing coefficient of cost accounting has been increased from 1.5 to 2.
Simplified Tax System
The Simplified Tax System may be applied, if the yearly income of business does not exceed RUB 450 million. Currently the maximum amount is RUB 200 million.
In future, businesses with a yearly income of more than RUB 60 million will have to pay VAT. The VAT rate is 5% for a yearly income between RUB 60 million to RUB 250 million and 7% for a yearly income of more than RUB 250 million. Currently, no VAT must be paid under the Simplified Tax System.
The profit tax rate is 6%, if basis for calculation is the sum of the income and 15%, if basis for the calculation is the surplus of the income over the expenses. The increased tax rates, introduced in 2021 for businesses with income of more than RUB 150 million and an average headcount of more than 100 hundred employees, will be abolished.
Changes of taxes for certain branches
The new version of the Tax Code provides for the following amendments of taxation for certain branches:
- Increase of mineral exploiting tax on certain types of minerals;
- Expansion of the list of excisable goods by including pharmaceutical substance of ethyl alcohol, as well as alcohol-containing medicines; nicotine raw materials and tobacco-free e-liquids.