The Russian Parliament has adopted federal laws amending tax legislation

The Federal Law “On amending part II of the Russian Tax Code” (adopted by the State Duma on 22 May and approved by the Federation Council (the upper house of the Russian Parliament) on 2 June as draft law No. 959325-7 

The Federal Law “On amending certain items of the legislation of the Russian Federation in order to take urgent measures aimed at ensuring sustainable growth of the economy and preventing the consequences of the spread of the new coronavirus infection” (adopted by the State Duma on 22 May and approved by the Federation Council on 2 June as draft law No. 953580-7 

We reported earlier[1] that most (yet not all) of the amendments are aimed at implementing what is referred to as the ‘third set’ of support measures for business and the public in connection with the pandemic of the coronavirus infection.

The amendments that were adopted can be split into several groups:

1) a release from an additional tax burden of companies and individual entrepreneurs that will receive preferential loans to resume their operations or preserve jobs, where outstanding debt can be written off

The conditions of such loan programme are set by the Russian Government's Resolution No. 696 dated 16 May 2020[2]. The programme provides for the state to subsidise interest rates and for banks to write off borrowers’ debts not later than 1 April 2021, provided that the borrower’s headcount at the end of each month during the period of supervision under the loan agreement was at least 80% of its headcount as at 1 June 2020.

The amendments to the Russian Tax Code (the “Tax Code”) establish that when banks terminate obligations involving the payment of the debt under a loan and/or interest, borrowers (both companies and individual entrepreneurs) will not accrue taxable income.

2) an ability to deduct expenses and claim VAT deductions on property transferred free of charge to medical institutions, the state and municipalities to fight the coronavirus infection

A free-of-charge transfer of property has been excluded from VATable items where such property is designated to be used to prevent and eliminate the spread of, and to diagnose and treat, the new coronavirus infection and is transferred to state and/or local authorities, state and municipal institutions, and state and municipal unitary enterprises. Further, the transfer of property to private (including non-municipally owned) medical institutions that are not-for-profit organisations will not constitute a sale, and nor will it be subject to VAT (article 39(3)(3) of the Tax Code).

Therefore, companies and entrepreneurs that transfer such property will not have to assess and pay VAT. However, under the specific new rules, they will be entitled to deduct the VAT they paid on importing such property or the VAT they declared when they purchased the property into Russia. It has been separately stressed, that the VAT deducted will not have to be recovered.

‘Mirror’ provisions have been established for corporate profit tax, unified agricultural tax and simplified taxation for these transactions: a transferor may deduct the value of property it has transferred (including monetary funds) as expenses, while the transferees (state authorities and management bodies, local authorities, state and municipal institutions, or state and municipal unitary enterprises) do not accrue taxable income.

Private medical institutions that are not-for-profit organisations (other than municipal institutions) will not have to assess profit tax on the property they thus received, provided that such property meets the criteria of targeted receipts (article 251(2) of the Tax Code).


Broad wording is used in all the provisions under review: “property designated to be used for the purpose of preventing and eliminating the spread of, and also for diagnosing and treating, the new coronavirus infection”.

This is broader than in article 264(1)(48.12) of the Tax Code which was adopted earlier: “expenses from the purchase of medical products for diagnosing (treating) the new coronavirus infection according to the list approved by the Russian Government[3]”.

3) an ability to deduct expenses on property that has been transferred free of charge to not-for-profit and religious organisations

Formerly, an assumption was made in the Tax Code that under no circumstances can expenses incurred when granting assistance to not-for-profit organisations reduce taxable profit.

It has been established now that a company may recognise as expenses (up to a maximum of 1% of the company’s sales proceeds) the value of any property (including monetary funds) it has transferred free of charge to three categories of organisations below:

  • socially-oriented not-for-profit organisations included in the special Register of socially-oriented not-for-profit organisations that have been receiving grants from the Russian President since 2017 (based on the results of competitions held by the Presidential Grant Foundation for the Development of Civil Society), as well as subsidies and grants within the framework of programmes implemented by federal executive authorities, executive authorities of constituent entities of the Russian Federation and local authorities, and public service providers and social service providers;
  • centralised religious organisations[4], religious organisations within the structure of centralised religious organisations, socially-oriented not-for-profit organisations that have been founded by centralised religious organisations or religious organisations within the structure of centralised religious organisations;
  • other not-for-profit organisations included in the Register of not-for-profit organisations that were hit hardest by the deteriorating situation caused by the spread of the new coronavirus infection.

Therefore, for the above provisions to be operative in practice, the Russian Government will have to designate federal executive authorities that will have mandates to maintain two new registers of not-for-profit organisations. These authorities will have to set up those registers by themselves.

The amendments to tax legislation will apply to relationships that arose after 1 January 2020. The registers of not-for-profit organisations, however, will obviously be approved only this June. In this regard, the question may arise, in our opinion, of whether expenses can be deducted that result from the transfer of property to those organisations that are included in the registers if the relevant transfers were effected before the registers were approved.

Expenses resulting from the transfer of property to centralised religious organisations can be deducted for profit tax purposes even now with respect to all transactions consummated since 1 January 2020.

4) a tax obligation being cancelled with respect to all taxes (except for VAT) for Q2 2020 for taxpayers that are SMEs from the most affected industries, individual entrepreneurs, and social not-for-profit and religious organisations

The measure will apply to several categories of taxpayers:

A) individual entrepreneurs

B) companies included in the unified register of small- and medium-sized enterprises (SMEs) based on their financial statements for 2018 and engaged in the most affected sectors of the Russian economy[5]

C)-F) socially-oriented not-for-profit organisations, religious organisations and “affected” not-for-profit organisations listed in the above section of our alert.

It has been established for all these taxpayers that they should be exempted from the obligation to pay taxes (make advance payments) for Q2 2020 with respect to corporate profit tax, excise duties, water tax, mineral extraction tax, unified agricultural tax, unified tax under simplified taxation, unified tax on imputed income, transport tax, tax on the property of companies and individuals, land tax, trade fee, personal income tax (meaning personal income tax that individual entrepreneurs pay on their own income; the obligation of tax agents to pay tax withheld from income paid to third parties remains).

The obligation to assess these taxes and file tax returns (calculations) within the statutory timeframes remains. To the best of our understanding, tax authorities will confirm that there is no obligation to pay specific amounts of taxes (make advance payments) based on such financial statements.

The above payers are relieved of the financial burden to pay insurance contributions and taxes within the scope of a patent system of taxation. However, from a legal viewpoint, such exemptions have been formalised differently: a 0% tariff has been established for insurance contributions payable on remunerations to the insured for April-June 2020, while calendar days that fall within Q2 2020 will be excluded from the period for which the patent has been issued for the purpose of assessing the tax under the patent taxation system.

5) it has been clarified how companies can be included in the SMEs’ register

In practice, many business entities have been facing difficulties with obtaining the support measures established for SMEs. Although they meet the requirements established by the law on SMEs and the average headcount and income for 2018, a number of entities were not included in the register of SMEs as at 10 August 2019 as they did not submit the necessary financial statements on time.

It has been established now that business entities will nevertheless be included in the register if they have submitted (will submit) to the tax authority such data for 2018 after 1 July 2019, but not later than 30 June 2020.

6) measures of support for self-employed payers of tax on earned income

Payers of tax on earned income will have returned to them the amounts of taxes for 2019 by way of subsidies being paid from the federal budget in the amount equal to the tax paid earlier. The amendments to the Tax Code establish that the above subsidy will not be taxed for those who receive it.

To pay the tax for 2020, self-employed will be granted a so-called “tax capital” in the amount of one minimum monthly wage. To this end, the tax deduction stipulated by article 12 of the Law “On conducting an experiment of establishing a special tax regime “Tax on earned income” (not greater than RUB 10,000 per annum according to the general rule) will be increased by RUB 12,130 for the purpose of assessing tax for 2020-2021.

7) insurance contributions for mandatory pension insurance as fixed amounts for 2020 have been reduced to RUB 20,318 for individual entrepreneurs engaged in the most affected sectors of the Russian economy

8) incentive payments have been exempted from personal income tax where such payments are made out of federal and regional budgets under federal laws, decrees of the President and resolutions of the Russian Government to people engaged in the fight against the coronavirus infection

What to think about and what to do

The amendments introduced to the Tax Code cover the relationships that arose after 1 January 2020.

Even if your company did not or does not receive any special measures of support the tax implications of which have been regulated by the amendments under review, we advise that you should check whether you transferred any property free of charge to not-for-profit or religious organisations (e.g. within the scope of charity) this year. If you did, please consider whether there are any grounds for deducting the value of such property as expenses based on the newly adopted amendments. You may require to have some documents executed by or to obtain some additional documents from those who received your aid.

It also makes sense to check whether you meet the criteria for being recognised as a SME based on the 2018 results. If you do, but were not included in the register as you did not file the financial statements on time, it is worth taking advantage of the opportunity the new law grants.

Pepeliaev Group’s lawyers are ready to provide you with any necessary assistance with respect to all these matters.

[1] https://www.pgplaw.ru/analytics-and-brochures/alerts/the-bill-of-tax-measures-to-support-the-business/

[2] “On approving the Rules for granting subsidies from the federal budget to Russian credit institutions to compensate their lost income from loans issued in 2020 to legal entities and individual entrepreneurs for them to resume their operations”

[4] A centralised religious organisation is a religious organisation that, in accordance with its charter, comprises at least three local religious organisations (article 8(4) of Federal Law No. 125-FZ “On the freedom of conscience and religious associations” dated 26 September 1997).

[5] The Russian Government’s Resolution No. 434 dated 3 April 2020

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