31.10.2024
VAT liability under the simplified taxation system (STS)
STS taxpayers will no longer be exempt from paying VAT by default. From 2025, for the first time, an obligation to pay VAT will be introduced for those STS taxpayers whose income exceeds RUB 60 million per year.
Risks for customers
Foreign-owned subsidiaries should not be directly affected, as there is a restriction on the application of the STS by foreign businesses. Sometimes, if other conditions are met, former subsidiaries of foreign shareholders which were acquired by Russian management can apply STS.
However, there is another problem. Together with the VAT changes, the issue of so-called business splitting (division of a single business activity between several formally independent entities (organisations, individual entrepreneurs) controlled by the same persons, aimed solely or mainly at understating tax amounts through the application of special tax regimes, in particular, the STS) becomes relevant for STS payers.
In the new environment, checking counterparties will require even more attention and careful analysis. Due to the introduction of a new group of VAT payers, the risk that a contractual counterparty is using a business split scheme and, therefore, is not entitled to use the simplified taxation regime should be identified. For the purchaser of services, this will mean that the Russian tax authorities may challenge the deduction of input VAT.
Risks for customers
Foreign-owned subsidiaries should not be directly affected, as there is a restriction on the application of the STS by foreign businesses. Sometimes, if other conditions are met, former subsidiaries of foreign shareholders which were acquired by Russian management can apply STS.
However, there is another problem. Together with the VAT changes, the issue of so-called business splitting (division of a single business activity between several formally independent entities (organisations, individual entrepreneurs) controlled by the same persons, aimed solely or mainly at understating tax amounts through the application of special tax regimes, in particular, the STS) becomes relevant for STS payers.
In the new environment, checking counterparties will require even more attention and careful analysis. Due to the introduction of a new group of VAT payers, the risk that a contractual counterparty is using a business split scheme and, therefore, is not entitled to use the simplified taxation regime should be identified. For the purchaser of services, this will mean that the Russian tax authorities may challenge the deduction of input VAT.