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21 December 2017 Russian President Signs Important Tax Code Changes

Legal update No 622

Goltsblat BLP advises that the President has signed a number of laws significantly changing the Russian Tax Code (the “Tax Code”).

The key changes:

VAT

  • Sale of ferrous and non-ferrous scrap and waste is no longer VAT exempt.
  • Now the buyer-tax agent, not the seller, must withhold and pay VAT on the above and on a number of other transactions.
  • Foreign companies selling e-services to both individuals and end user companies and individual entrepreneurs must now register with the tax authorities and calculate and pay the so-called Google tax on such transactions.
  • The 0% rate will apply to re-export of goods.
  • Taxpayers may refuse to apply the zero rate to certain types of transaction (such as export, re-export, international shipping, etc.) provided they do so in relation to all such types of transaction and notify the tax authority to this effect.
  • The 5% rule now applies only to goods (works and services) used by taxpayers in both taxable and non-taxable transactions at the same time. If they are intended for non-taxable transactions only, no tax may be deducted thereon even if the costs of buying, manufacturing and/or selling the goods (works, services) or property rights whose sale is not subject to taxation are capped at 5%. Please also note that taxpayers complying with the 5% barrier rule may no longer avoid maintaining two separate VAT accounting systems.

Profit Tax

  • Article 286.1 is introduced into the Tax Code, permitting certain categories of taxpayer to reduce their profit tax (advance pavement) by an investment tax deduction (“ITD”).
  • “ITD” is a lump sum deduction of most (up to 90%) of the cost of the purchased fixed assets but not exceeding a specifically calculated cap.
  • ITD (as an alternative to depreciation) may be applied to fixed assets in depreciation groups 3 to 7 and the decision to apply it must be made for all assets in these groups. Depreciation may not be applied to such assets. Taxpayers may not change their decision to apply ITD/depreciation for three years (a different timeline may however be prescribed by the legislation of Russian constituent entities).
  • If a fixed asset applying an investment tax deduction is written off or sold before its useful life is over, the taxpayer must make up the tax and pay penalties. In this case, the taxpayer may reduce its sales proceeds by the fixed asset’s acquisition value.
  • The right to apply ITD is granted by the legislation of Russian constituent entities, which may also determine the qualifying taxpayer and fixed asset categories. It is presumed that the investment deduction clauses may be applied until 31 December 2027.

Property Tax

  • Russian constituent entities that have not granted the property tax exemption for movable assets from 2018 may not set a tax rate of more than 1.1% in 2018 for movable assets booked since 1 January 2013, other than those received from related parties or resulting from corporate restructuring or winding-up.


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