On July 12th 2024, Federal Law N 176-FZ (the Law) to the Tax Code of the Russian Federation was published, providing for an increase in taxes (profits tax, PIT, VAT) from 2025. The tax system itself will not change significantly.
Profits tax
The basic profits tax rate shall increase from 20% to 25% starting from 2025. The withholding tax rate on outbound cross-border payments shall also increase from 20% to 25% (this applies, for example, to loan interest or license payments to businesses from "unfriendly" states), unless the reduced rates under DTT are applied. Special withholding tax rates of 15% for dividends and for fees for intragroup services, and 10% for income from international transportation, will remain unchanged.
The tax burden on IT companies will also increase - the profits tax rate for the next three years, starting from 2025, will be 5% instead of 0%.
Together with the tax increase, the Law provides for the possibility to reduce the tax burden through investments. For example, a new mechanism - the federal investment tax deduction (FITD) - is introduced. The amounts of such deduction reduce the profit tax in the part remitted to the federal budget. At the same time such a deduction has a number of restrictions, including that it cannot exceed 50% of the total amount of expenses on investments in fixed and/or intangible assets. Also new is the possibility of transferring the deduction (companies belonging to the same group as the person which incurred expenses on fixed and intangible assets may also apply FITD). More detailed rules for the application of the deduction, including conditions for taxpayers, types of fixed and intangible assets, will be established by the Government of the Russian Federation.
In addition to the introduction of the FITD, the investment tax deduction (such deduction is applied subject to regional laws) and the incentives under regional investment projects (RIP) for participants listed in the register with capital investments of RUB 500 million or more will be extended for an indefinite period of time. Moreover, the multiplying factors for expenses written off in tax accounting are increased from 1.5 to 2 for fixed assets listed in the unified register of Russian radio-electronic products, as well as high-tech equipment and intangible assets according to the list of the Government of the Russian Federation.
PIT
Residents
Starting from 2025, a five-stage progressive PIT scale is introduced, with new rates of 18%, 20% and 22%. The maximum rate of 22% will be applied to income over RUB 50 million per year, and the rate of 15% - to income exceeding RUB 2.4 million per year (currently 15% applies to income over RUB 5 million). Thus, from the annual income of RUB 10 million RUB 2.4 million will be taxed at the rate of 13%, RUB 3.6 million at the rate of 15% and further RUB 4 million at the rate of 18%.
The two-stage scale (13% on income not exceeding RUB 2.4 million per year, 15% on income over RUB 2.4 million per year in the relevant exceeding part) will apply to certain income of Russian tax residents (for example, income from the sale of property, payments under insurance contracts, dividends, income from transactions with securities, income from the sale of shares in companies, income from interest on deposits in banks of the Russian Federation).
Non-residents
For non-residents, the basic rate will remain 30% the same with a number of special rules and exceptions, namely:
- First, the above five-stage progressive scale (13-22%) will also apply to some of non-residents' income, for example, remuneration of highly qualified specialists, remote workers of Russian organizations and certain contractors working under civil law contracts in the Russian segment of the Internet.
- Secondly, a fixed tax rate shall apply to certain income (for example, dividends or income in the form of interest on deposits in Russian banks).
CFC
From 2025, the tax burden on owners of CFCs will increase. Under the current rules, a tax amount of RUB 5 million can be paid on “fixed profits” regardless of the number of CFCs. Starting from 2025, the amount of tax paid on “fixed profits” will depend on the number of CFCs. However, if there are five or more CFCs, the amount of tax will not increase further. At the same time, the “fixed profits” of CFCs will be taxed at the rates based on the new progressive PIT scale.
Exemption of certain income from PIT
The Tax Code of the Russian Federation provides for exemption from PIT for income from the sale of real estate and from the sale (redemption) of shares in Russian organizations if a number of conditions are met (including a certain period of ownership). In accordance with the provisions of the new law, starting from 2025, this exemption will apply only to residents and only to the amount of income not exceeding RUB 50 million.
VAT for payers applying the simplified taxation system
Starting from 2025, organizations and individual entrepreneurs, including those applying the simplified taxation system, with annual turnover of RUB 60 million or more in 2024, will become VAT payers. In this case, such organizations/IEs will be obliged to pay VAT either on general terms (at the rate of 20% with the right to deduct input VAT) or apply the reduced VAT rates of 5% (for annual revenues up to RUB 250 million) or 7% (for annual revenues over RUB 250 million up to RUB 450 million). Where special rates are applied, VAT deductions cannot be claimed by such taxpayers and the relevant amounts of input VAT are accounted for as expenses (if the regime of the respective organization/IE allows deduction of expenses).