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Tax manoeuvre for IT companies

Tax manoeuvre for IT companies

LEGAL DIGEST, NEWS \ 30.07.2020

The Federation Council approved a law according to which IT companies will be able to receive a number of tax benefits in order to stimulate and develop their activities. The provisions of the law also provide for a reduction in the period for determining the status of a tax resident in the Russian Federation.

According to the information from the document, separate taxation rules will be established for Russian IT companies, namely reduction of income tax rates, introduction of reduced insurance premium rates and application of zero VAT when realizing computer programs and databases. These changes will come into force starting from January 1, 2021.

Profits tax 

IT companies will be able to pay profits tax at the rate of 3% instead of 20%. At the same time, 3% of the tax will be transferred to the federal budget, and 0% – to the regional one. Two categories of companies will be able to apply the specified rate, each of these companies has its own mandatory conditions:

Companies operating in the field of ITCompanies that design and develop electronic component base products, electronic or radio-electronic products
availability of a document on state accreditation;share of income from the sale of IT products from the total share of all income gained is at least 90%; average staff number of the company for the reporting or tax period is at least 7 peopleavailability in the relevant register, which will be maintained by the bodies of the Ministry of Industry and Trade; share of income from the sale of services (works) for the design and development of electronic component base products and electronic (radio-electronic) products at the end of the reporting period is at least 90%; average staff number of the company for the reporting or tax period is at least 7 people

Please note that if at the end of the reporting period above-said conditions is not meet, the tax from the beginning of the year will have to be paid at the general rate of 20%. 

Reduced insurance premium rates

Those organizations that have the right to reduced income tax rates will be able to pay insurance premiums at the rate of 7.6% (instead of 14%) in the context of the following types of insurance: compulsory pension insurance (CPI) – 6%; compulsory health insurance (CHI) – 0.1%; compulsory social insurance (CSI) – 1.5%.

The conditions for applying reduced contribution rates will be similar to the conditions for using reduced income tax rates.

Application of VAT

Currently, the realization of exclusive rights (and rights under the licensing agreement) to any software is not subject to VAT, but after the Law enters into force, realization operations will be exempt from VAT:

  • exclusive rights to computer programs and databases included in the unified register;
  • rights to use these programs and databases.

Rights to use may be transferred by entering into a licensing agreement, as well as by providing remote access to programs and databases via the Internet, including updates to them and additional functionality.

The specified exemption cannot be waived. However, it should be noted that the VAT exemption will not be applied to the transfer of rights to use computer programs and databases, if these rights consist in obtaining the ability to:

  • distribute advertising on the Internet and gain access to it;
  • post offers on the Internet for the purchase or sale of goods, works, services, and property rights;
  • search information about potential buyers and sellers or conduct transactions.

Please note that exclusive rights to inventions, utility models, industrial designs, know-how, as well as rights to use these intellectual property results will remain exempt from VAT.

Reducing the period of tax residence

If an individual has actually been in the Russian Federation in the period from 90 to 182 calendar days inclusively during 2020 (from January 1 to December 31), he or she can obtain or retain the status of a tax resident of the Russian Federation.

To obtain this status, an individual should submit an application drawn up in any form to the tax authority. It is necessary to specify your full name and taxpayer ID number (Russian acronym – INN) in the application. The term for submitting an application is not later than April 30 of the following year.

Please be reminded that according to the Tax Code of the Russian Federation, individuals who are actually staying in Russia for at least 183 calendar days within 12 consecutive months are recognized as tax residents. The income of such persons is subject to personal income tax at the rate of 13%, but from when the status is lost, the tax will have to be paid at an increased rate of 30%.

Acsour’s specialists carefully monitor indicated changes and are ready to advise you in the matters of the application of tax legislation. In addition, among Acsour’s clients in the IT industry there are cases known to have successfully used current tax benefits. This experience will help to document and receive the preferences listed above.

Document: Draft Federal law No. 990337-7.

Ekaterina Lutenko

Internal Auditor