Numerous amendments to the Russian Tax Code

Pepeliaev Group advises that federal laws[1] have been adopted which are aimed at implementing the Main Lines of tax policy and which extensively amend the Russian Tax Code (the “Tax Code”).

Federal Law No. 382-FZ “On amending part two of the Russian Tax Code” (the “Law”) comes into force on the date when it is officially published, except for specific provisions which are set out below.

Federal Law No. 379-FZ "On amending part one of the Russian Tax Code comes into force on 1 January 2022.

The most important changes are described below.

1. Property tax

The Law amends article 378 of the Tax Code. The amendments provide that property that is leased out, among other things, under a financial lease agreement (a leasing agreement) is always subject to taxation on the part of the landlord (the lessor).

The above amendments have been triggered by Order No. 208n of the Russian Ministry of Finance dated 16 October 2018 approving Federal Bookkeeping Standard (known in Russia by the acronym “FSBU”) 25/2018 “The bookkeeping of a lease” which has been applicable on a voluntary basis since 2019 and which will become mandatory starting from the accounting (financial) statements for 2022. The new standard dramatically changes the bookkeeping rules with respect to a lease. Thus, according to Bookkeeping Regulations 6/01(known in Russia by the acronym “PBU”) “The accounting of fixed assets”, fixed assets that have been leased out continue to be booked on the balance sheet of the landlord, and the tenant books them only on off-balance sheet account 001 “Leased fixed assets”. Therefore, if the lease is booked in accordance with the current procedure, the landlord is to pay property tax on the leased out fixed assets.

2. Corporate profit tax

The right is excluded of the parties to a leasing agreement to determine who will book the leasing item on the balance sheet when carrying out tax accounting. Now, as is the case with the property tax (see above), the leasing item will be booked as a fixed asset only by lessors (article 258(10) of the Tax Code is excluded).  

Related amendments have also been made:

• the conditions for leasing payments for property accepted under a leasing agreement to be treated as other expenses (article 264(1)(10) of the Tax Code): the lessee’s expenses will include lease (leasing) payments for leased property (property accepted under a leasing agreement) (including land plots) without such payments being reduced by the amounts of depreciation assessed (since lessees will no longer be able to depreciate the leasing property).   It is also set out that, if leasing payments include the redemption value, the leasing payments are booked as expenses exclusive of the redemption value.

The specified amendments also establish that they do not apply to agreements concluded before 1 January 2022.

It is also established that income in the form of subsidies (except for subsidies to reimburse interest rates on loans) that small and medium-sized enterprises or organisations classified as socially-oriented not-for-profit organisations have received from the federal or regional budget during the pandemic of the new coronavirus infection, are not booked in the profit tax base.

3. Personal income tax

The Law provides for several amendments with respect to personal income tax. Let us look into two such amendments.

The first amendment does not concern entities that are tax agents, but may be of great interest to society. Families with children are exempt from personal income tax when selling housing to improve housing conditions, regardless of how long the housing has been owned. The rule will apply subject to several conditions:

• the family has at least 2 children;

• the family bought new housing in the same year or before 30 April of the next year;

• the total area or cadastral value of the purchased asset exceeds the figures of the asset that has been sold.

The second amendment is that employees’ salary is exempt from personal income tax as part of “coronavirus” subsidies. The above concerns payments from employers that received subsidies for non-working days in October and November 2021 and for limitations relating to, among other things, the introduction of QR-codes. The rule should be applied once in the month when the subsidy is received or in the subsequent month. The amount of income that is exempt from personal income tax is limited to an amount of not more than RUB 12,792. The same rule has been introduced with regard to insurance contributions.

The above amendments extend to relationships that have formed since the beginning of 2021.

4. Unified tax payment

From 1 July until 31 December 2022 an experiment will be held that involves taxpayers applying a unified tax payment.

During this period entities and individual entrepreneurs will be able to voluntarily apply a specific payment (transfer) procedure for taxes, levies, insurance contributions, default interest and fines by transferring the unified tax payment. Taxpayers will no longer be obliged to specify the type of payment, the payment deadline and to what exact budget it will be transferred. The payment will be transferred to the account of the Federal Treasury from which the tax authority will independently set off funds based on the information (documents) available to it as mandatory payments in accordance with the established order of priority. The idea of the Russian Federal Tax Service is that all of the procedures should be automated.

In order to switch to the new payment method a taxpayer needs to:

• carry out a tax reconciliation jointly with the tax authority;

• file an electronic application in the period between 1 and 30 April 2022, but no later than one month after the joint reconciliation of settlements.

Moreover, an additional notice should be filed with the tax authority about the calculated tax amounts not later than 5 days before the payment deadline for the relevant taxes.

The above new development is supposed to be a simplification for business, since it will allow errors in payments to be ruled out that often result in a “technical” debt being formed on which default interest is assessed.

However, we recommend that taxpayers should carefully assess all circumstances before they take part in the experiment, since it is unknown at the moment whether the automatic distribution of the unified tax payment will be carried out correctly.

Moreover, amendments have been made to article 78 of the Tax Code that regulate the setting off and repayment of taxes. From 1 January 2022 the amount of tax paid in excess will also be able to be set off against the payment of insurance contributions. At present taxes paid in excess may be set off against taxes, and insurance contributions paid in excess may be set off against contributions.

5. Other changes in the Tax Code

5.1. The terms relating to wine-making products that are used in the Tax Code have been brought into line with the industry-specific legislation. The payment rules for excise taxes on grape must and grape have been adjusted.

5.2. Several related amendments concern the taxation of entities in the metals industry:

• excise taxes on liquid steel have been introduced. An entity’s usage of liquid steel in order to generate metallurgical products (semi-finished products) by casting will be the item of taxation;

• amendments to chapter 26 “Mineral extraction tax” provide that approaches should be adjusted to imposing mineral extraction tax on saleable ferrous metal ores, multi-component complex ores containing copper, nickel, platinum metals produced in Krasnoyarsk Territory, agglomerating coal, as well as abraum salts, apatite-staffelite, apatite-magnetite, apatite and phosphorite ores.

5.3. With a view to encouraging efficient usage of land plots, it is established that with respect to an item that has been reported to the tax authority as not being used in accordance with its purpose, tax is assessed at the rate of not more than 1.5%:

• starting from the day on which mandatory usage and safety requirements are violated for the items of land relationships,

• or from the day when such violations are identified if the authority for federal state control (supervision) over land relationships does not have information about the specified day, and until the first day of the month in which the specified authority establishes that the violations have been eliminated.

Previously the Tax Code did not provide for the period when the general rate should start to apply in the event that it had been identified that a land plot was being used other than for its purpose.  

What to think about and what to do

The amendments introduced by the new laws affect various aspects of taxpayers' business activities. We recommend that companies should assess the effect of such amendments on their current processes.

Help from your adviser

Pepeliaev Group’s lawyers are tracking in real-time mode any changes in tax legislation and offer advice on a wide range of issues related to taxation. They are also ready to represent taxpayers on various matters before tax authorities and in courts.

[1] Federal Laws dated 29 November 2021 Nos. 379-FZ “On amending part one of the Russian Tax Code” and 382-FZ “On amending part two of the Russian Tax Code”.

[2] Letter No. 03-05-04-01/2993 of the Russian Ministry of Finance dated 21 January 2020.