Taxes in Russia

PUBLICATIONS \ 21.06.2021

The Russian tax system covers the aggregate of all taxes and levies adopted in Russia as well as the administrators (state authorities) and payers of taxes and levies. The Russian tax system includes:

• all taxes, insurance contributions and levies adopted under the Russian Tax Code (the “Tax Code”);
• persons who are subject to taxes and levies;
• the regulatory framework; and
• state authorities in the area of taxation and finances.

The interaction of the above elements and the integral approach to addressing taxation objectives form the Russian tax structure, which has three levels:

• federal;
• regional; and
• local.

The tax level depends on the level of the public budget to which such tax is to be paid. Since the Russian tax system has a three-level structure, legislation on taxes and levies also has three levels:

• federal legislation – the highest level of the legal framework: the Tax Code, federal laws, decrees of the Russian President, resolutions of the Russian Government, and the Russian Constitution. This level functions throughout Russia. No subordinate or other regulations can or should contradict federal legislation.
• regional legislation comprises laws of constituent entities of Russia which relate to taxation in a specific Russian region.
• local legislation comprises regulations adopted by local government authorities.

In addition to the above, the Russian Finance Ministry and the Russian Federal Tax Service draw up orders, clarifications, explanations, letters and other instruments necessary to give greater specificity to the provisions and articles of the Tax Code and of federal laws in the area of taxation.

There are 14 taxes in Russia in total: 8 federal taxes, including state duty, three regional taxes and three local taxes. There are five special taxation systems that stand somewhat apart. There are also insurance contributions and a new experimental taxation regime for the self-employed which was introduced in 2019.

Federal taxes have equal rates and rules for their calculation and payment across the whole country. Regional taxes are approved by the Tax Code at the federal level. Regional authorities, however, are entitled to change the conditions of taxation at their own discretion to the extent established by the Tax Code, as well as to introduce and modify special taxation regimes. Local taxes are also approved by the Tax Code, while local authorities are authorised to amend and supplement them to the extent permitted by the Tax Code.

There are five taxation systems in Russia, along with an experimental regime which was introduced in 2019. Companies choose one of them based on their objectives, lines of business, headcount, number of employees, their assets and other factors.

• The general (traditional) taxation system (GTS). This is automatically assigned to all companies and individual entrepreneurs once they are registered. The system provides for the greatest number of levies and for tax accounting to be maintained.
• The simplified taxation system, or the simplified system (STS).   This is one of the most advantageous regimes. Legal entities and individual entrepreneurs pay unified tax on the pre-determined tax base at the rate of 6% where ‘income’ is the taxable item, or at the rate of 15% where the taxable item is ‘income less costs’.
• Unified agricultural tax (UAT). This is designed for producers of agricultural products. The tax rate of 6% is established for individual entrepreneurs and legal entities whose revenues from agricultural activities account for at least 70% of their total revenues.
• The patent taxation system (PTS). This is only applicable to individual entrepreneurs engaged in a specific field of business. The Tax Code sets out restrictions on the use of this system. It provides for a patent to be obtained for a specific type of services or for trade.
• Self-employment tax (SET). This is an experimental type of taxation effective in more than 20 Russian regions. It is applied to individual entrepreneurs and self-employed persons who have no hired employees. All income received is subject to taxation, with the limit being RUB 2.4 million. The rate is 4% for individuals and 6% for legal entities and individual entrepreneurs. There is no need to maintain accounts, with the tax being calculated by an inspectorate of the Federal Tax Service. 

Russian legislation allows for a mixed taxation system to be used. This opportunity is available for most individual entrepreneurs and companies. For example, you can combine the STS and PTS.

The fundamental principles of the Russian tax base were laid down back in 1992 and have undergone almost no changes since. However, there are regular amendments of laws, for both individuals and legal entities alike.