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The rules have been approved for granting subsidies to small and medium sized enterprises from the industries most affected by the spread of COVID-19

28.04.2020
8 min read
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Pepeliaev Group advises that on 24 April 2020, in its Resolution No. 576[1] the Government approved the rules (the “Rules”) for granting free-of-charge governmental financial aid (the “subsidy”) to small and medium-sized enterprises (the “SMEs”) from the most damaged branches of the economy; SMEs will be able to use the subsidy for the partial compensation of their current expenses including on paying out salaries to their employees for April and May 2020.

I. Conditions for the subsidy to be granted (all of them must be met)

According to the Rules the following companies are eligible for the subsidy[2]:

1. Companies included in the Unified Register of Small and Medium-sized Enterprises as at 1 March 2020.

2. Companies that, as at 1 March 2020, conduct business in an industry most affected by the spread of coronavirus.

The List of Most Affected Industries has been approved by Resolution No. 434 of the Russian Government dated 3 April 2020[3] (with the changes introduced by the Russian Government’s Resolutions No. 479 and No. 540 dated 10 April 2020 and 18 April 2020, respectively) (the “List”).

It is important to note that whether a company complies with the List is determined based on the core line of its business, which is specified in the Unified State Register of Legal Entities or Unified State Register of Individual Entrepreneurs (abbreviated in Russian as EGRUL and EGRIP, respectively) as at 1 March 2020. In other words, if the code under the All-Russian Classification of Types of Economic Activities 2 (known by the Russian acronym OKVED2)[4], which is included in the List of Most Affected Industries, is specified as the code of a company’s additional line of business, such a company will not be eligible for the subsidy.

3. Companies that are not undergoing a liquidation procedure.

4. Companies with respect to which no bankruptcy proceedings have been instigated.

5. Companies that have not been excluded from the Unified State Register of Legal Entities (EGRUL) by a relevant decision.

6. Companies that do not have arrears on taxes and social security contributions in an amount exceeding RUB 3,000.

7. Companies that have preserved the number of persons on their payroll at the same level in the month for which the subsidy is paid or have reduced this number by not more than 10% in the period in question as compared with March 2020.

8. Companies that have filed an application for the subsidy with the tax authority.

II. The procedure for filing an application for a subsidy

The application may be filed with the tax authority at the company’s location (the place of residence for an individual entrepreneur) both electronically (through the taxpayer’s personal account on the website of the Federal Tax Service), and in hard copy by post (if this is the case, the application must be filled in according to the form of Annex No. 2 to the Rules).

We note that starting from 1 May 2020 a dedicated service is expected to start to operate on the website of the Federal Tax Service that will allow for the subsidy application to be filed.

As far as the timeframes are concerned, to receive a subsidy for April 2020 the application must be filed within the period from 1 May to 1 June 2020; and for May 2020, within the period from 1 June to 1 July 2020.

III. The amount of the subsidy will be calculated as follows:

  • the number of employees in March 2020 multiplied by RUB 12,130 – for legal entities;
  • the number of employees in March 2020 plus one multiplied by RUB 12,130 – for individual entrepreneurs.

For individual entrepreneurs that do not have employees the subsidy amounts to RUB 12,130.

The Federal Tax Service will independently determine the number of a subsidy recipient’s employees based on the data of the Russian Pension Fund taken from the reports that, in turn, have been filed with the Pension Fund by SMEs[5]. Consequently, the Rules determine that the subsidy recipient is responsible for the accuracy of such information, and if it is found that the recipient of subsidy has misrepresented the individual (customised) reporting data, an applicant will have to return to the state budget any subsidy it may have received.

IV. The criteria for checking an application for a subsidy

The tax authority will check the application for whether the information stated in it conforms to the conditions for receiving the subsidy and for the completeness, correctness and accuracy of the information specified, as well as whether it conforms to the data available to the tax authority (according to the Rules this includes such information conforming to the bank account data that banks have submitted to the tax authority).

Consequently, apart from the failure to observe the timeframes for filing the application, a subsidy may be refused on the ground that the applicant has failed to comply with the established criteria and that the details specified in the application are at variance with information available to the tax authority.

V. The outcome of the review of an application conducted by the tax authority

Information on the results of the review of an application will be available on the website of the Federal Tax Service. In addition, the Federal Tax Service will inform each applicant of the results of such review by telecommunication channels, through the taxpayer’s personal account on the Tax Service’s website and in the form of a letter sent by post concerning the subsidy having been transferred (on or before the date after the day when the relevant information is received from the Federal Treasury) or the subsidy not being granted (within 3 business days from when the application was sent, but not before 18 May or 18 June, depending on the month for which the subsidy is granted).

The Federal Treasury transfers the subsidy based on a register received from the Federal Tax Service in electronic form (including by sending the register to the credit institution for funds to be transferred to the recipients of the subsidy) no later than 3 business days after receiving the register. The Federal Tax Service must send such register to the Federal Treasury within 3 business days from the date on which the SME files the application (provided there are no grounds for refusing to grant the subsidy claimed in the application) but not before 18 May or 18 June, depending on the month for which the subsidy is granted.

VI. Tax implications of the subsidy being received

Please note that subsidies will not be taken into account for determining the profit tax base (article 251(1)(60) of the Tax Code). This rule has been established by Federal Law No. 121-FZ “On amendments to part two of the Tax Code of the Russian Federation” dated 17 April 2020, and this decision of the legislature can only be welcomed.

What you should do

We recommend that you pay close attention to the process of filling in the subsidy application, given that the subsidy may be refused not only to those applicants failing to meet the eligibility criteria and to file the application in time, but also on the ground that the details stated in the application are at variance with the information available to the tax authority. You should also bear in mind that, as we understand, an application with respect to each of the possible months when the taxpayer is eligible for the subsidy (April and May 2020) may be sent only once. We cannot rule out that any inaccuracy in the application, even the most insignificant one, may trigger a refusal of the subsidy to an SME.



[1] The Russian Government’s Resolution No. 576 dated 24 April 2020 “On approving the Rules for granting subsidies from the federal budget in 2020 to small and medium-sized enterprises conducting business in those branches of the Russian economy that are most affected by the deterioration of the situation with the spread of the new coronavirus infection”.

[2] Despite, as specified in clause 2 of the Resolution itself, the approved list being used for applying article 7(1) of the Federal Law “On amendments to the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’ and individual items of Russian legislation in relation to the specifics of changing the terms and conditions of credit facility agreements and loan agreements” with regard to so-called credit vacations for SMEs, it is already obvious that the same list will also be used to apply the rules for other measures of governmental support to businesses, including subsidies.

[3] Despite, as specified in clause 2 of the Resolution itself, the approved list being used for applying article 7(1) of the Federal Law “On amendments to the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’ and individual items of Russian legislation in relation to the specifics of changing the terms and conditions of credit facility agreements and loan agreements” with regard to so-called credit vacations for SMEs, it is already obvious that the same list will also be used to apply the rules for other measures of governmental support to businesses, including subsidies.

[4] All-Russian Classification 029-2014 (KDES (NACE) Version 2). All-Russian Classification of the Types of Economic Activities approved by Order No. 14-st of the Federal Agency for Technical Regulation and Metrology (known by the Russian abbreviation Rosstandart) dated 31 January 2014.

[5] Here we mean the reporting according to the ‘Information on the Insured Persons’ form approved by Resolution No. 83p of the Executive Committee of the Russian Pension Fund dated 1 February 2016 that the subsidy recipient submits under the procedure and within the timeframes established by Russian legislation.

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