Federal Law No. 102-FZ dated 1 April 2020 (the “Law”) enacts a number of tax support measures applicable to Russian taxpayers, primarily those belonging to negatively affected sectors of the economy. The Law also delegates certain legislative powers relating to taxation to the Russian government.
Pursuant to the Law, the Russian government adopted a plan of sustainable economic development on 2 April to clarify and extend the tax support measures announced earlier by the Russian President.
Apart from that, the Law introduces a new taxation regime for individuals on interest received from bank deposits. This is also one of the tax measures announced by the Russian President to finance the various tax and social support measures recently introduced.
Tax measures aimed at supporting Russian businesses
Tax measures introduced by the Law
Extension of the authorities of state executive bodies
Until the end of the 2020 calendar year, the Russian government is authorised to issue legal acts in the area of tax covering in particular the following:
- the suspension, abolishment or deferral of tax control measures (including those relating to transfer pricing);
- the extension of tax reporting and payment deadlines; and
- the introduction of new grounds and procedures for additional tax relief measures.
These amendments allow the Russian government to react immediately to the rapidly changing tax environment in the country and swiftly introduce temporary tax measures.
Under the Law, if there is a conflict between Tax Code provisions and governmental acts adopted pursuant to the Law, the provisions set down in the governmental acts concerned will prevail until the end of 2020.
Similar powers are provided to regional state authorities for tax issues governed by regional legislation.
Introduction of reduced social contribution rates for SMEs
As of 1 April 2020, SMEs enjoy reduced social contributions rates in Russia. The cumulative social contributions rate applicable to SMEs will be 15% (instead of the normally applicable 30%), and will apply to all salaries exceeding the minimum monthly salary.
Non-working days equated to official public holidays for tax purposes
The Law clarifies that non-working days introduced in Russia must be treated in the same manner as official public holidays and weekends, which will result in shifting certain tax reporting and payment deadlines, as specified in our previous eAlert.
In turn, the Russian government, pursuant to new powers granted to it by the Law, further extended tax reporting and payment deadlines, as specified below in more detail.
Tax measures taken by the Russian government to ensure sustainable economic development
On 2 April 2020, the Russian government enacted Resolution No. 409 (the “Resolution”) introducing a package of additional tax measures to ensure sustainable economic development in Russia.
The Resolution is mainly aimed at supporting businesses negatively affected by the current economic situation and SMEs, although certain measures are applicable to all taxpayers.
Extension of tax reporting deadlines
All Russian taxpayers will enjoy the following deferral of tax reporting deadlines in Russia:
- The deadlines for filing tax reports in relation to most taxes due in the second quarter of 2020 are extended for a three-month period (with the exception of VAT and social contributions reporting).
This would mean, for example, that the submission of the annual income tax return for corporate taxpayers is shifted from the end of March to end of June 2020.
- The deadline for filing VAT tax returns for the first quarter of 2020 will expire on 15 May 2020 instead of 27 April 2020. (This is also the case for social contributions calculations normally submitted by the end of April).
It should, however, be noted that similar extensions do not apply to tax payment deadlines (apart from specific cases listed below), meaning that in certain cases under the new rules a tax payment deadline could occur prior to a reporting one.
Suspension of tax audits
According to the Resolution, the initiation of new field tax audits and the continuation of ongoing field tax audits will be suspended until 1 June 2020. Similar measures apply to audits for transfer pricing and currency control purposes.
In addition to this, taxpayers could enjoy various deadline extensions for the submission of documents and information to tax authorities, if requested.
Penalties for the late submission of tax reporting or other information or documents to tax authorities will not apply during this period.
Tax payment deferrals granted to SMEs
SMEs belonging to negatively affected sectors in Russia will benefit from tax payment deferrals (except for VAT and taxes they withhold as a tax agent) for a period of three to six months (depending on the type of tax) for taxes and social contributions due in 2020.
Possibility to request additional tax support measures
The Resolution makes it possible for taxpayers (in particular those not qualifying as SMEs) belonging to negatively affected sectors of the Russian economy, and strategic, system-forming and city-forming organisations to request additional tax deferrals. The Resolution also specifies the rules for granting these additional tax deferrals.
The grounds for requesting these tax deferrals are primarily linked to the decrease of a taxpayer’s revenues in Russia.
Taxpayers must file applications for a tax deferral with regional tax authorities together with a schedule for the tax settlement by 1 December 2020.
The period of tax deferral (starting from three months) and additional requirements applicable in each case will then be negotiated between the taxpayer and the regional authorities in charge.
Clarifications from the Russian tax authorities
To further clarify the new rules introduced by the Resolution, the Russian Federal Tax Service published a detailed chart specifying how the tax reporting and payment deadlines are changed and a Q&A addressing the taxpayers’ most common questions.
In addition, the Federal Tax Service launched a specific online service designed to allow taxpayers to check what tax support measures are applicable to them based on their tax identification number.
The abovementioned measures are primarily aimed at supporting negatively affected businesses and SMEs suffering from a severe shortage of revenues resulting from the suspension or a material reduction of their activities, notably due to various limitations introduced to combat the spread of COVID-19 in Russia.
In addition, governmental authorities consider that other businesses are also likely to face issues in fulfilling their tax reporting obligations in due time, in particular because of the prolongation of non-working days in Russia and the technicalities of remote work. The respective deadlines have been prolonged to avoid requiring the taxpayers’ accounting services to return to their work places.
However, in absence of similar deferrals for tax payment (and not only reporting) deadlines, Russian taxpayers, other than eligible SMEs, may still face the technical necessity to determine their taxable base for certain taxes before the tax reporting deadlines, to ensure tax payments are made in due time.
In addition to this, the introduced measures may turn out to be insufficient to neutralise the negative impact of taxes that are disconnected from the company’s revenues (e.g. social contributions and property tax), or are calculated based on the previous year’s results.
As previously reported, Russian businesses have already appealed to Russian authorities for stronger support measures, and further negotiations about this are ongoing.
Taxation of interest income on personal bank deposits
New tax rules introduced
The Law introduces personal taxation of interest income from bank deposits in Russian banks in roubles or in foreign currency.
The same Law abolishes a previously applied tax exemption for interest income received by individuals from certain types of debt securities.
The tax base under the new rules will be determined as the positive difference between the interest income actually received by a taxpayer and the product of the multiplication of RUB 1 million (i.e. the tax exempt minimum announced by the Russian President, which is approximately EUR 12,300) and the applicable key rate determined by the Bank of Russia (currently, the applicable key rate is 6%).
Interest income received in a foreign currency should be converted into roubles at the official exchange rate determined by the Bank of Russia on the date of the actual receipt of interest income.
The amount of tax due will be determined based on a 13% tax rate, irrespective of the tax residency status of the income recipient. Under the general rules, income received by non-residents in Russia is subject to an increased 30% tax rate, except for certain exemptions.
The Russian Ministry of Finance has already issued additional clarifications on the application of these new taxation rules, including an arithmetical example of the tax base determination, which are available at its official website.
Tax administration and payment
Banks paying interest due to individuals will not be acting as tax agents, meaning that the tax payment obligations are directly imposed on the individual taxpayers.
The tax due will be payable based on a tax notice circulated by the tax authorities no later than 1 December of the year following the year when the income was received by a taxpayer.
This being said, the first tax payments for the year 2021 will have to be made by 1 December 2022.
Income received from escrow accounts and rouble bank deposits with an annual interest rate not exceeding 1% will be exempt from taxation under the new rules.
Information exchange and additional obligations of Russian banks
Russian banks will be obliged to provide Russian tax authorities with information on the interest income paid to each individual in each respective calendar year. This information will have to be provided by 1 February of the year following the expired tax period in the prescribed form to be further determined by the Russian tax authorities.
By Dominique Tissot, Partner, and Maria Kabanova, Senior Associate, CMS Russia