Covid-19: ‘Tax Superpowers’ of the Government, Personal Income Tax on income from deposits, and insurance contributions

Pepeliaev Group advises that, on 31 March 2020, the Russian State Duma adopted a Federal Law^[1] which lays down the first legislative tax measures aimed at supporting the economy against the backdrop of the coronavirus pandemic.

1. For the period between 1 January and 31 December 2020, the Russian Government has been vested with the right to issue regulatory acts which may alter and/or supplement the rules of the Tax Code in relation to the following:

• suspending, cancelling or delaying the scheduling and carrying out of tax audits, and extending the periods for tax claims as well as decisions for recovery to be submitted and enforced;
• extending the deadlines for the payment of taxes, levies, and insurance contributions as set out in the Code, including the deadlines for regional and local taxes;
• extending the deadlines for tax returns (calculations), accounting (financial) statements and/or other documents to be submitted to the tax authorities;
• determining additional grounds for granting in 2020 a deferral (an instalment plan) for the payment of taxes, insurance contributions, default interest, fines, and interest, and changing the procedure and conditions for granting such deferral (instalment plan);
• determining the grounds and conditions for the non-use of, or specific features of using special methods for enforcing the obligation to pay taxes, levies and insurance contributions;
• determining the grounds and conditions for the non-application of liability for defaulting on the provision (or for the untimely provision of) tax returns (calculations), accounting (financial) statements and/or other documents (data) to the tax authorities.

The regional executive authorities are vested with the right to extend the deadlines for the payment of regional and local taxes if the Russian Government has not introduced any relevant measures. Alternatively, they may establish longer extension periods, including for individual categories of taxpayers.

Similar extended powers of the Russian Government to be in effect from 1 January until 31 December 2020 are also enshrined in Federal Law No. 125-FZ dated 24 July 1998 “On compulsory social insurance against workplace accidents and occupational diseases”, including in relation to the following issues: the extension of the deadlines for paying insurance contributions, the deadlines for submitting calculations and/or other documents, the deadlines for submitting and enforcing claims for the payment of insurance contributions, default interest and fines in arrears, and the deadlines for making a decision for recovery; the establishment of additional grounds for granting in 2020 a deferral (an instalment plan) for the payment of insurance contributions, default interest and fines; and the establishment of grounds and conditions when liability should not be imposed.

The statutory documents issued by the Russian Government may provide that they apply to legal relations which arose starting from 1 January 2020.

For the current year, the Government and the executive authorities of constituent entities of the Russian Federation are vested with extended powers concerning major issues of taxation and tax administration. These issues commonly are within the remit of the lawmakers. In our opinion, the relevant regulations should not be adopted to taxpayers’ detriment; they should be aimed at eliminating the adverse economic impact of the coronavirus epidemic and the restrictive measures introduced in connection with it.

2. For the purposes of the Code, the notion of a ‘business day’ has been clarified: a business day is a day which is not recognised as a weekend day, a holiday and/or a day-off. Consequently, where a period set by the Tax Code ends on such a day, the first business day is deemed to be the end of such period.

This amendment allows the uncertainty that has arisen to be eliminated with regard to how periods should be calculated if they coincide with days-off from 30 March until 3 April as declared by the Russian President. For instance, this applies to the deadline for submitting the profit tax statements for the year 2019.

3. The special procedure has been cancelled for determining the tax base when a taxpayer receives income in the form of interest (a coupon) on marketable bonds of Russian companies denominated in Rubles and issued after 1 January 2017. Such income will now be taxed under the general procedure which also applies to other income from transactions involving securities.

4. Starting from 1 January 2021, the aggregate income of an individual in the form of interest received on all deposits (account balances) with banks located in the Russian Federation will be subject to personal income tax at the rate of 13%. This tax will be applied to the amount exceeding the amount of interest calculated as the product of RUB 1 million and the key rate of the Central Bank of Russia effective as at the first day of the relevant calendar month.

Relief from taxation will be granted for income from deposits (balances on accounts) in Rubles with banks located in the Russian Federation if the interest rate on such deposits (balance accounts) does not exceed 1% per annum, as well as for escrow accounts.

Where income is generated in the form of interest in foreign currency, such income will be converted into Rubles at the official rate of the Central Bank set for the date when the income was actually received.

The tax amount to be paid at the end of the year will be calculated by the tax authority based on information provided by banks no later than 1 February of the following year, regarding the amounts of interest paid (except interest on Ruble deposits for which the interest rate did not exceed 1% per annum, and interest on escrow accounts) in relation to each individual who received such payments during the tax period.

Individuals pay tax based on notifications sent by the tax authorities no later than 1 December of the year following the year when income in the form of interest was received.

Until now, income in the form of interest on deposits (balances on accounts) had been subject to personal income tax only if the interest rate increased by more than 5 percent over the refinancing rate of the Central Bank of Russia (for foreign currency accounts, the increase was 9%). Therefore, no personal income tax had been applied to the interest income of individuals. The new rules are introduced in strict compliance with the provisions of article 5(1) of the Russian Tax Code (not until the next tax period). Using the key interest rate of the Central Bank to determine the amount of income which is not taxed in the context of the aggregate amount of deposits (balances on accounts) not exceeding RUB 1 million eliminates any questions as to how to determine the tax base if an individual has several deposits (accounts) with different interest rates.

5. Reduced tariffs are provided for in relation to insurance contributions for payers recognised as small and medium-sized enterprises (article 427(1)(16) of the Tax Code).

Starting from 2021, the following reduced tariffs for insurance contributions will be applied in relation to the above payers:

• 10% for compulsory pension insurance (both within the established maximum base for calculating insurance contributions for compulsory pension insurance as well as in excess of the maximum base[2]);
• 0% for compulsory social insurance against temporary incapacity for work and in connection with maternity leave;
• 5% for compulsory medical insurance.

Although the reduced tariffs alleviate the position of a taxpayer, they will apply starting from 1 January 2021.

However, the Law specifically sets out that, from 1 April 2020 till 31 December 2020, the same reduced tariff rates of insurance contributions will apply to SMEs as those enacted starting from 1 January 2021.

The reduced tariff of insurance contributions, both for the period from 1 April 2020 until 31 December 2020 and starting from 2021 will be applied, as the Russian President suggested, only in relation to the part of the payments to an individual which exceeds the minimum monthly wage (which is currently RUB 12,130). As regards the amounts of payments which do not exceed, or are equal to, the minimum monthly wage, the common tariff rates for insurance contributions remain unchanged (article 425 of the Tax Code): 22% and 10% for compulsory pension insurance (within the established maximum amount and in excess of such amount, respectively); 2.9% for compulsory social insurance against temporary incapacity for work and in connection with maternity leave; 5.1% for compulsory medical insurance.

This means that the halving (from 30% to 15%) of insurance contributions for small and medium-sized enterprises (for amounts of wages which exceed the minimum monthly wage) as announced by the Russian President on 25 March 2020 has actually been incorporated into the Law.

6. The corresponding amendments are introduced into article 33 of Federal Law No. 167-FZ “On compulsory pension insurance in the Russian Federation”: for instance, reduced tariffs for insurance contributions for policyholders recognised as small and medium-sized enterprises.

Starting from 2021, the following tariffs for insurance contributions will be applied to such policyholders classified as SMEs:

• within the established maximum base for calculating insurance contributions for compulsory pension insurance:

- 22% in relation to the part of the payments to the insured parties which is determined based on the results of each calendar month and does not exceed the minimum monthly wage;

-10% with regard to the amount exceeding the minimum monthly wage.

• in excess of the established maximum base for calculating insurance contributions for compulsory pension insurance:-

- 10% in relation to the part of the payments to insured parties, which is determined based on the results of each calendar month and does not exceed the minimum monthly wage;

- 10% with regard to the amount exceeding the minimum monthly wage.

The same document contains approved charts of tariffs for insurance contributions to the compulsory pension insurance fund aimed at financing the insurance pension and the contributory pension. The Russian Pension Fund assigns these tariffs based on the data from individual (personalised) accounting records in accordance with the pension plan selected by the insured party (0.0 percent or 6.0 percent to finance the contributory pension).

The same tariffs for the insurance contributions in relation to policyholders who are recognised as small and medium-sized enterprises are also envisioned for the period from 1 April 2020 until 31 December 2020. The provisions of the Law with regard to the above apply to the period starting from 1 April 2020, despite its later entry into force.