New amendments to the Russian Tax Code

Pepeliaev Group advises of amendments in the field of taxation, most of which will come into effect starting from 1 January 2025

In this alert, we are discussing Federal Law No. 362-FZ “On amending the Russian Tax Code and other legislative instruments regarding taxes and levies” dated 29 October 2024 (the “Law”). We will focus on the proposed amendments, with the exception of excise duties and mineral extraction tax.

A temporary return of an increased default interest 

The Russian Tax Code (the “Tax Code”) had a general rule for taxpayers that are business entities that a penalty was 1/300 of the Bank of Russia's key rate for the first 30 calendar days, and was subsequently increased to 1/150. Starting from March 2022 and until the end of 2024, the increase of the penalty to 1/150 was abolished.

The Law returns the increased default interest for 2025, to be applied as follows:

• for the first 30 calendar days: 1/300 of the Bank of Russia's key rate;
• starting from the 31st day of the delay and until the 90th day: 1/150 of the Bank of Russia's key rate;
• however, starting from the 91st day of the delay, the size of default interest will again be 1/300 of the Bank of Russia's key rate.

No default interest will be accrued on arrears which do not exceed the positive balance multiplied by the monetary funds that have been offset against the discharge of a future obligation to pay a specific tax (article 75 of the Tax Code).

The procedure for formalising VAT invoices when a VAT payer is released from its obligations

Article 145(1) of the Tax Code establishes a list of persons who are eligible for being exempted from the obligations of payers of VAT. This list includes, among others, persons whose revenues for three preceding months from the sale of goods (work or services), net of VAT, have not exceeded, in aggregate, RUB 2 million.  

Starting from 2025, when such taxpayers sell goods (work or services), VAT invoices will be drawn up without any amounts of tax being singled out. However, a note or a stamp “Net of tax (VAT)” will have to be made on the above documents.

Moreover, starting from 2025, all persons who apply the simplified taxation system will be formally recognised as payers of VAT. However, those whose income for the previous tax period does not exceed RUB 60 million will be released from the obligations of payers of VATFor more details, please refer to the alert (https://www.pgplaw.ru/analytics-and-brochures/alerts/izmeneniya-v-nalogovyy-kodeks-rf-po-nalogu-na-pribyl-nds-usn-i-imushchestvennym-nalogam/).  Previously, this would have meant that they are nonetheless required to issue VAT invoices, starting from 2025. This would evidently result in a significant increase of paperwork and red tape.

The amendments resolve this problem: when goods (work or services) are sold by taxpayers who apply the simplified tax system but are exempt from the obligations of a VAT payer, no VAT invoices will be drawn up (article 168(5) of the Tax Code).

Additions to the composition of the tax base that is subject to personal income tax at the rates of 13 % and 15 %

This summer, Federal Law No. 176-FZ dated 12 July 2024 (“Law No. 176-FZ”) was adopted, which introduced numerous changes in tax legislationFor more details, please refer to the alert (https://www.pgplaw.ru/analytics-and-brochures/alerts/izmeneniya-v-nalogovyy-kodeks-rf-po-nalogu-na-pribyl-nds-usn-i-imushchestvennym-nalogam/). One of the most discussed amendments was differentiated rates of personal income tax being introduced starting from 2025.

Special rules for determining the tax rate of 13% and 15% will apply to some types of income, starting from 2025. 

The Law under discussion expands the composition of such income to include:

• income generated from fiduciary management of assets which constitute a unit investment fund; 
• a financial benefit which has been derived from the purchase of securities, derivatives and membership interests in a company's issued capital (article 210(6) of the Tax Code).

Changes in the rules for an exemption to be granted from the taxation of income derived from the sale of membership interests and securities

Law No. 176-FZ has also changed the conditions for the sale (redemption) of membership interests in the issued capital of Russian companies and of securities to be exempt from personal income tax (article 217 of the Tax Code). Specifically, starting from 2025, no tax exemption will apply to the part of the tax base that exceeds RUB 50 million. 

The Law in question establishes that when the above limit of RUB 50 million is calculated, the income will be reduced by the amount of expenses which have been confirmed by documents on the acquisition of the membership interests/shares. Consequently, the amount with regard to which the exemption will be granted will be calculated in relation to the profit, i.e. the individual’s income less expenses (article 210 of the Tax Code).

Brokers booking expenses of payers of personal income tax under transactions with securities

The Law supplements article 226.1 of the Tax Code, which regulates the procedure for tax agents to calculate and pay the tax when transactions are performed with securities and derivatives.

Starting from 2025, professional participants of the securities market will be obliged to book a taxpayer’s expenses which have been actually incurred and which are connected with securities being acquired and safeguarded, based on the information that has been passed to it by another professional participant of the securities market, unless the taxpayer has provided other information. 

The tax agent will be obliged to keep for 5 years the information that has been provided to it.

Financial benefits will be exempt from personal income tax if derived from savings on interest for a taxpayer using borrowed funds (credit facilities) 

The Law exempts from taxation financial benefits from savings on interest under a loan or credit agreement, provided that the following conditions are met:

• a taxpayer is eligible for a property tax deduction in relation to the purchase or construction of housing (article 220(1)(3) of the Tax Code);
• a credit or a loan has been granted for the new construction or for the acquisition in Russia of a house, apartment, room or a share (shares) in them, land plots on which such housing is located and land plots for private housing or for refinancing purposes; 
• a loan (credit) agreement was concluded before 31 December 2024.

We note that the amendments entered into force once the Law was published.

The possibility of depreciating fixed assets by using a federal investment tax deduction

Starting from 2025, Law No. 176-FZ has introduced a new investment tax deduction (article 286.2 of the Tax Code)For more details, please refer to the alert (https://www.pgplaw.ru/analytics-and-brochures/alerts/izmeneniya-v-nalogovyy-kodeks-rf-po-nalogu-na-pribyl-nds-usn-i-imushchestvennym-nalogam/), which stipulates that the amount of profit tax that is due to the federal budget shall be decreased by the capital expenditures made within the scope of investment projects.

One of the prerequisites for a tax deduction to be applied is that assets cannot be depreciated in terms of their value which has been formed out of expenses in relation to which the right to apply the deduction has been exercised. The Law changes this provision and stipulates that depreciated assets to which the deduction has been applied shall be included in the depreciation groups based on the original value which has been decreased by, among other things, the amount of the deduction (article 286.2(7) of the Tax Code).

Increasing the rate of profit tax in relation to income in the form of interest on securities that are specified in article 284(4)(1) of the Tax Code

Article 284(4)(1) of the Tax Code establishes a special rate of 15%, together with additional conditions in relation to income in the form of interest on:

• government securities of members of the Union State, i.e. of Russia and Belarus;
• government securities of constituent entities of the Russian Federation and municipal securities;
• mortgage-backed bonds issued after 1 January 2007;
• bonds of Russian companies (except for bonds of foreign companies that are recognised as tax residents of Russia) which on the relevant dates on which interest income is booked on such bonds are recognised as bonds circulating on an organised securities market that are denominated in Russian roubles and issued after 1 January 2017.

Starting from 2025, the tax rate in relation to this type of income is being increased to 20 %.

Rules are being specified for how the tax base is determined and income tax is calculated and paid in relation to transactions with shares (membership interests in the issued capital) of economically significant companies and transactions with Russian Eurobonds

Amendments have been adopted whereby a transfer of shares of economically significant companies into the Russian jurisdiction of ownership and an issuance of public substitute Eurobonds becomes neutral for taxation purposes.

1) Shares of an economically significant company

For payers of personal income tax: when an individual receives a portion of shares of an economically significant company, the expenses on the purchase of such relevant portion of shares is recognised to be the portion of expenses which is determined when shares are purchased which the taxpayer obtains into its ownership pro rata to the taxpayer’s indirect membership ownership in the issued capital of the economically significant company (article 214(10.1) of the Tax Code).

For payers of profit tax: when a taxpayer receives a portion of shares (membership interests) in an economically significant company, the cost of such shares (membership interests) in the economically significant company will be assessed as the product of the cost of the shares (membership interests) in the economically significant company and the portion of the nominal value of the shares (membership interests) in the economically significant company which were partially received and in relation to which the taxpayer was required to become a direct owner (article 277(2.6) of the Tax Code).

These legal provisions apply to legal relationships which have emerged since 2 July 2024.

2) Transactions with Russian Eurobonds

For payers of personal income tax: when Russia’s public securities, whose nominal value is denominated in a foreign currency (Russian Eurobonds), are swapped (substituted) for substitute Russian Eurobonds, no tax base will be determined in relation to such transaction. When substitute Russian Eurobonds are sold (redeemed), which the taxpayer has received as a result of such a swap (substitution), documented expenses on the purchase of substitute Russian Eurobonds which the taxpayer owned before such Eurobonds were swapped (substituted) shall be recognised to be expenses which have been confirmed by documents. If the expenses are incurred in a foreign currency, they will be reassessed in Russian roubles at the official exchange rate of the Bank of Russia as established on the date when income was actually received from the sale (redemption) of substitute Russian Eurobonds (article 214.1(13) of the Tax Code).

For payers of profit tax: income in the form of the cost of substitute bonds or substitute Russian Eurobonds which have been received as a result of a swap (substitution) of bonds of foreign entities (Eurobonds) or Russia’s public securities whose nominal value is denominated in a foreign currency (Eurobonds of the Russian Federation) will not be booked for profit tax purposes (article 251(1)(33.3) of the Tax Code).

These provisions will be applied by holders of Eurobonds or Russian Eurobonds, provided that they held such Eurobonds as at 1 March 2022 (in the case of an individual, and also if such Eurobonds were held by a CFC where the taxpayer is a controlling person).

These legal provisions apply to legal relationships which have emerged since 1 January 2024.

Stamp duties have been increased for performing certain legally binding actions

Starting from 2025, the Law increases stamp duty for certain legally binding actions being performed (article 333.33(1) of the Tax Code).

Stamp duty for having a lease agreement registered or an assignment of rights of claim registered under lease agreements will be increased from RUB 22,000 to RUB 44,000, provided that the above should be registered in the Unified State Register of Real Estate (article 333.33(1)(27.2) of the Tax Code).

For instance, a charge for cadastral registration or for having ownership title registered to an enterprise as a property complex will amount to 0.2% of the value of the property, or of the property or other rights that comprise the enterprise as at the date when the application is filed. The charge, however, will be no less than 0.2% of the value of the transaction that serves as a ground for transferring ownership title to the enterprise, and not more than RUB 1,000,000. The stamp duty today is 0.1% of the cost of assets, but no more than RUB 60,000 (article 333.33(1)(21) of the Tax Code).

The tax rate is being preserved under the simplified taxation system when a company changes its location (an individual entrepreneur changes his/her place of residence)

Article 346.21(2) of the Tax Code establishes that if a company changes its location (an individual entrepreneur changes his/her place of residence), tax (advance tax payments) will be assessed during a tax period using the tax rate which has been established in the constituent entity of the Russian Federation where the company is located (the place where the individual entrepreneur is resident).

Starting from 2025, the Law establishes a special rule aimed at countering abuse in connection with regions being changed where taxpayers are located. If a taxpayer that applies the simplified taxation system moves to another region where a lesser tax rate is set for the next 3 years than in its former region, the taxpayer will be obliged, during those 3 years, to apply the tax rate which has been established in the constituent entity where it was registered before it changed its location (new para 2 of article 346.21(2) of the Tax Code).

The date on which a right is deemed to be lost to apply the simplified taxation system

Amendments made previously have established that when a taxpayer does not meet the criteria and requirements for applying the simplified taxation system, the taxpayer would no longer be eligible to apply it, starting from the quarter in which the taxpayer’s income was surpassed and/or when the above requirements ceased to be met.

The Law changes the procedure whereby the right is lost to apply the simplified taxation system and establishes that the taxpayer will lose its right to use the simplified taxation system starting from the 1st day of the month in which violations were committed (article 346.13(4) of the Tax Code).

The application of the automated simplified taxation system will be extended to all regions

Federal Law No. 17-FZ dated 25 February 2022 was adopted in that year regarding a pilot test to be held to apply a special tax regime: “The automated simplified taxation system”. The main feature of the tax regime is that taxpayers are not obliged to assess tax independently or to fill in and submit tax returns. They need only to maintain their records of income and expenses in a taxpayer’s personal account and pay the tax.

The experiment was originally conducted in four regions, which are: Moscow, Moscow Region, Kaluga Region and Tatarstan.

Starting from 2025, the Law extends the opportunity of using “The automated simplified taxation system” to all regions where it has been introduced in accordance with the relevant regional law (article 6 of the Law).

A number of accompanying amendments are being introduced in connection with the above. For instance, under “The automated simplified taxation system”, taxpayers’ incomes will be taken into account when limits under the simplified taxation system are calculated (article 8 of the Law).

Exemption from property tax being granted to producers of electric power

Starting from 2025, the following entities will be exempt from the tax:

• backbone regional power grids and regional grids - in relation to power lines, transformer and other substations, distribution points with a voltage class of up to 35 kV, inclusive, as well as cable power lines and equipment designed to ensure electrical connections and the transmission of electric power, irrespective of their class of voltage;
• entities whose core lines of business consist of the production of electric power from renewable sources of energy - in relation to property that constitutes solar electric plants.

Changing the procedure for paying tourist tax

Law No. 176-FZ dated 12 July 2024 has introduced tourist taxFor more details, please refer to the alert (https://www.pgplaw.ru/analytics-and-brochures/alerts/vvedenie-turisticheskogo-naloga/). The legal provisions regarding tourist tax come into effect starting from 2025. 

It has been presumed that taxpayers will be obliged to pay tourist tax according to separate payment details. The Law, however, has changed this rule: tourist tax will be paid within a unified tax payment (article 58(1) of the Tax Code).

What to think about and what to do 

The amendments that are being made affect various aspects of taxpayers' business activities. Numerous adjustments are being made by the summer amendments to the tax legislation. We presume that the summer amendments have already been analysed from the perspective of the opportunities and risks they create. 

We recommend that you familiarise yourself with the new Law and amend your tax planning for 2025 accordingly.

Help from your adviser 

Pepeliaev Group’s lawyers are well versed in advising their clients on the risks associated with changes in legislation and in protecting their clients’ interests when they challenge the claims of tax authorities.

We are ready to advise you on any issues relating to the forthcoming amendments to the Tax Code.