New tax benefits for IT companies: the state continues to stimulate the domestic information technology industry

Pepeliaev Group advises that on 14 July 2022, a law[1] came into force that introduced new measures to stimulate the domestic information technology industry. In particular, the conditions for obtaining tax benefits have been simplified, and the corporate profit tax rate has been reduced to zero for 2022-2024.

Prior to the adoption of the Law, Russian companies carrying out activities in the field of information technology could apply for the following tax benefits:

  • A reduced rate for corporate profit tax: 3% (3% to the federal budget, 0% to the state budget of a constituent entity of the Russian Federation);
  • Reduced rates for insurance contributions: 7.6 (6% on compulsory pension insurance, 1.5% on compulsory social insurance against temporary incapacity for labour, as well as relating to maternity leave, and 0.1% on compulsory medical insurance).

In order to receive tax benefits, Russian companies were required to meet the following conditions:

  • The company has received state accreditation with the Russian Ministry of Digital Development, Communications and the Mass Media (for more information please read Pepeliaev Group’s review);
  • A company carries out preferential activities: it develops and implements the software it has developed and/or provides services for the development, adaptation, modification, installation, testing and maintenance of software;
  • The share of income from the implementation of preferential activities is at least 90%;

The average headcount is at least 7 people.

As part of the programme to stimulate the domestic information technology industry, the Law simplified the conditions for obtaining tax benefits (article 1(4)(b)(3) of the Law), in particular now:

  • The share of income from the implementation of preferential activities has been decreased from 90% to 70%;

  • The requirement for the average number of employees has been excluded;

  • The list of eligible activities has been expanded and also includes the following types:

    • The provision of services (performance of work) for the development (including testing and maintenance) of software and hardware complexes (if there is a document issued by the Russian Ministry of Finance and confirming that the services (works) provided for by the contract fall within the development of software and hardware complexes);
    • The implementation of the developed software and hardware complexes included in the unified register of Russian software;
    • The provision of services for the dissemination of advertising information on the Internet and/or obtaining access to such information;
    • The provision of services for granting access to audiovisual works and/or TV programme messages on an audiovisual service included in the register of audiovisual services;
    • The provision of services to provide access to individual phonograms, a set of phonograms, items of copyright and related rights related to phonograms;
    • The provision of services in the Internet for the placement and/or promotion of offers, advertisements for the purchase (sale) of goods (works, services), property rights, employment offers, services for the search for such offers, ads (access to such offers, ads) and/or for the conclusion of contracts;
    • The provision of services by a company licensed to carry out educational activities to grant access to electronic educational information (services); and
    • Other types of activities.

To book income from the implementation of some of the above listed activities, the company must meet additional conditions, for example, to provide services exclusively using its own software included in the Unified Register of the Russian Ministry of Digital Development, Communications and the Mass Media.

On the other hand, the Law specifies a list of activities the income from which the company is not entitled to book for the purposes of obtaining tax benefits. These types of activities include the provision by the company of rights to use its own software, including by granting remote access to it via the Internet, if such rights consist of the following:

  • Obtaining the opportunity to post information about public catering services, an offer to conclude a contract for the sale of a certain product (dish) made by a company providing public catering services, to conclude a sale and purchase agreement, to make an advance payment for the goods (dish), while the taxpayer company also ensures the possibility of delivery and handing over of the goods (dish) to the buyer;

  • Obtaining the opportunity to post information about the potential demand for passenger and baggage transportation services by passenger taxi, as well as obtaining the opportunity to become acquainted with information about offers of companies providing services in this area, and to search for these offers according to the parameters set by the user;

  • Obtaining the opportunity in relation to a certain product to place an offer on the Internet, an announcement that a contract has been concluded for the sale and purchase of goods and to conclude a contract of sale and purchase make a prepayment for the goods if the company also ensures the possibility of storage, packaging, delivery, and handing over of goods to the buyer using real estate and/or vehicles to which it has the right of ownership, lease or another right;

  • Obtaining the opportunity to initiate and carry out cashless money transfer operations; and

  • Other types of activities.

It is possible that, for the purposes of applying tax benefits, some digital platforms (for example, food ordering services, taxi aggregators, marketplaces and online banks) will not be able to take into account income from providing users with access to their own applications and services.
In 2022-2024, for companies operating in the field of information technology and meeting the mandatory conditions, the rate is 0% (article 1(3) of the Law). If before the Law enters into force, the company applied a tax rate of 3% in 2022, now it has the right to apply a rate of 0% (article 2(3) of the Law).

However, the preferential rate is not applicable by:

  • companies created as a result of a reorganisation (other than transformation) or reorganised in the form of merging another legal entity into them or a spin-off of one or more legal entities from its composition after 1 July 2022.;

  • companies (including credit institutions) in which Russia directly and/or indirectly participates, and the share of such participation is at least 50%.

The reduced rates of insurance premiums have not been changed by law.

The law also applies to state accreditation in the Ministry of Finance of Russia. The previously valid Procedure for the state accreditation of companies operating in the field of information technology was applied until 1 August 2022 (article 2(5) of the Law).

On 2 August 2022, it became known that the Ministry of Digital Development, Communications and the Mass Media is proposing to change the Procedure for state accreditation and provide for the following requirements for companies:

  • Revenue from IT activities is at least 30%, while the company keeps separate records of income. The accounting statements generated for the previous reporting period should reflect revenue from core activities;

  • The company has an entry for the field in the All-Russian Classifier of Types of Economic Activity (abbreviated in Russian as “OKVED”) as its main entry;

  • At least 80% of the company's employees receive a salary not lower than the national average.

Start-ups that do not have revenue, but invest in IT, will also be able to apply for state accreditation. For this purpose, they will need to declare an IT project that is being developed and indicate the status of its implementation.

What to think about and what to do

In connection with the adoption of the Law, it is advisable for IT and other companies operating in the field of information technology to conduct an ‘audit’ of their activities with regard to the right to apply tax benefits. This is especially true for companies in respect of which a reorganisation is planned.

The early detection and elimination of possible violations will mitigate the risk of liability being imposed on the company.

Help from your adviser

Pepeliaev Group’s lawyers monitor changes in legislation regarding tax benefits for IT companies. If regulations are adopted or official explanations of the Russian Federal Tax Service and of the Russian Ministry of Digital Development, Communications and the Mass Media are published with regard to the application of the Law, we will inform you of this.

Owing to changes in legislation, we are ready to provide comprehensive legal support to companies that are engaged or planning to carry out activities in the field of information technology in order to obtain benefits and other support measures:

  • checking whether there are grounds for the application of benefits and support measures;

  • advising on how a company should bring its operations in line with the requirements to obtain support measures; 

  • assisting IT companies with obtaining state accreditation; and

  • advising on how to interact with state authorities (if necessary).

[1] Federal Law No. 321-FZ “On amending Part Two of the Russian Tax Code” dated 14 July 2022 (the “Law”).

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