During an address to the nation on 25 March, Russian President Vladimir Putin announced anti-crisis measures to support Russian businesses and individuals and to find ways to replenish the state budget. The measures applicable to taxation are described below.
Support of Russian business
Introduction of tax holidays for small and medium enterprises (SMEs)
SMEs will be granted six-month payment deferrals for all taxes, excluding VAT.
The criteria to determine whether a company is an SME are provided in Federal Law No. 209-FZ dated 24 July 2007. Among other stipulations, companies recognised as SMEs cannot be held by a corporate entity (either Russian or foreign) other than another SME at more than 49%.
In addition to the above tax holiday, micro-enterprises (as defined in Federal Law No. 209-FZ) will also enjoy similar deferrals for social contribution payments.
Previously, the Russian government announced a tax deferral would be introduced until 1 May 2020 for only the negatively affected sectors of economy.
Reduction of social contribution rates for SMEs
The cumulative social contribution rate for SMEs is to be reduced from 30% to 15% for salaries exceeding the minimum monthly wage.
This measure is being introduced for the long term, and will not be discontinued at the end of the pandemic.
Moratorium on bankruptcy procedures
The President announced a six-month moratorium for insolvency claims and claims for debt collection.
This measure will apply to the most vulnerable sectors of the economy, which the Russian government will list and regularly revise.
Previously, the Russian government posted a bill for public discussion allowing it to introduce a bankruptcy moratorium in exceptional cases. Hence, the President’s announcement, which immediately introduced the moratorium, goes further than the government initiative.
Pumping the Russian budget
Taxation of cross-border payments
The President proposed introducing a 15% withholding tax on outbound income payments from Russia (including dividends and, in certain cases, interest).
The Russian government has been instructed to negotiate respective amendments to all applicable double tax treaties (DTTs).
DTTs with jurisdictions that do not accept these changes will be terminated unilaterally.
In turn, during a government session that took place on 26 March, the Russian Prime Minister instructed the Ministry of Finance to draft within one month amendments to all applicable DTTs to implement these proposed changes.
According to an official announcement made on the website of the Russian Ministry of Finance, the new taxation rules will only apply to outbound payments made to so-called “transit jurisdictions”, which primarily concerns Cyprus.
Moreover, the new rules will not apply to interest payments made on Eurobonds, bonds and loans provided by banks.
It is expected that these changes will come into force in 2021, and will thus not concern any payments made in 2020.
These announced measures still leave much to be clarified, most importantly what jurisdictions will ultimately qualify as transit ones, and under which conditions the new rules will apply to them.
Taxation of individuals
Interest income received by individuals from bank deposits and investments in debt securities will be subject to personal income tax at a 13% rate, provided that the total amount of investments exceeds RUB 1 million (EUR 11,630).
Taxation, however, will not concern the principal amounts of such investments or bank deposits.
Based on the latest clarifications the Russian Minister of Finance gave to the press, taxation will not concern forex gains from investments in foreign currencies. Interest received in a foreign currency is to be recalculated into roubles on a daily basis.
The new taxation rules will be implemented starting from 2021. So the first tax payments under the new rules will have to be made in 2022.
Additional funds collected as a result of these tax measures will be used to cover the extraordinary expenses of the Russian budget associated with the implementation of the announced anti-crisis measures in different domains (including the tax measures referred to above).
The measures announced by the President should certainly be rated as more radical than those previously announced at the governmental and regional levels, and will likely have a middle- to long-term effect on the Russian economy.
Despite the fact that most of the measures are aimed at keeping certain sectors of the Russian economy afloat, it cannot be excluded that changes to international taxation rules will adversely affect the investment climate in Russia for foreign investors.
It is expected that legislative changes itemising the announced measures will follow shortly.
CMS Russia’s tax experts are closely monitoring the COVID-19 situation and will continue to provide updates on any further announcements and developments in the field of tax and customs.
If you have any questions on the above or, more generally, our on-stream summaries on the legal measures adopted in response to the COVID-19 outbreak in Russia, please contact our local CMS experts Dominique Tissot, Maria Kabanova or your regular CMS advisor.
By Dominique Tissot, Partner, and Maria Kabanova, Senior Associate, CMS Russia