On November 26, 2014, St Petersburg legislative assembly adopted in the third reading a law amending the Law On Tax Incentives and Certain St Petersburg Legislative Acts. This law was adopted to increase the city’s investment attractiveness and decrease the tax burden on entrepreneurs.
The main provisions of this law will come into force on January 01, 2015. You will find below a brief summary of the tax incentives introduced by this new law.
General Conditions for Tax Benefits
The law introduces an additional condition to benefit from most new, as well as a number of existing property and profit tax concessions. Companies will be entitled to get such benefits only if the average monthly salary of their employees working in St Petersburg exceeds St Petersburg minimum wage at least threefold.
The law considerably extends the list of property tax benefits. In particular, under this new law, companies, which have been investing in real estate properties at least RUB 300 million for 3 consecutive years, will be exempt from property tax. Please note that when calculating the total investment amount, the following, among others, is not considered:
- Investments made prior to 2015;
- Land plots;
- Real estate properties intended for lease or leased (with some minor exceptions).
Property tax exemption is granted for 2 years.
Under the new law, taxpayers, who make large investments in machinery, equipment and/or vehicles after January 01, 2015, will be entitled to reduce their property tax by 2.2% of their investment amount. To benefit from this tax reduction, investments should be at least RUB 50 million per year. Please note that when calculating investment amounts, investments in, among others, movable properties intended for lease or leased are not taken into account. This tax benefit is granted for 1 year.
The law also introduces land tax benefits for private companies. Up to now, land tax benefits were granted only to certain categories of individuals, state agencies and companies with state participation.
Now, companies building, modernizing or reconstructing real estate properties on land plots in St Petersburg will be exempt from land tax if they invest RUB 100 million for a period of 3 consecutive years or less starting from 2015. Please note that to benefit from this exemption, the real properties in which investments are made must occupy at least 30% of the land plot on which they are located, and the ownership title to the land plot may be acquired before, during or after investments.
This land tax benefit will be granted to companies for 2 years.
As a general rule, companies pay 20% profit tax of which 2% are remitted to the federal budget and 18% to the regional budget. The new law reduces the rate of profit tax payable to St Petersburg budget down to 13.5% for all St Petersburg companies investing in fixed assets at least RUB 800 million over 3 consecutive years. Previously, only residents of special economic zones, enterprises from specific industry sectors and organizations investing at least RUB 15 billion could benefit from such a reduced rate.
This profit tax benefit will be granted for 5 years.
The law also provides for benefits for St Petersburg companies investing in fixed assets at least RUB 300 million for 1 year. For such companies, the rate of profit tax payable to St Petersburg budget is reduced to 15.5%. This reduced tax rate will apply for 3 years.
To benefit from these reduced profit tax rates, investments must be made after January 01, 2015.
Tax benefit based on employee headcount
The rate of profit tax payable to St Petersburg budget is set at 16.5% for St Petersburg companies whose average employee headcount exceeds 400 people and average monthly salary exceeds St Petersburg minimum wage sevenfold, i.e. with an average monthly salary exceeding RUB 62,076.
Profit tax rate is also set at 13.5% for St Petersburg companies whose average employee headcount exceeds 100 people and average monthly salary exceeds St Petersburg minimum wage twelvefold, i.e. with an average monthly salary exceeding RUB 106,416.
When average employee headcounts and average monthly salaries are calculated, the salaries and number of employees working in separate subdivisions located outside St Petersburg are not taken into account.
The above reduced rates may be applied for 1 year.
Many medium and large companies based in St Petersburg will be able to benefit from the concessions granted by this new law thus decreasing their tax burden.
To benefit fully from these new tax benefits, BRICS Consulting recommends taking the following steps:
- Reviewing existing operations to determine what tax benefits will your company be able to apply;
- Planning and duly documenting investments in order for your company to benefit from tax concessions in the future.
At your request, BRICS Consulting specialists would be pleased to determine whether your company is entitled to any new tax benefits, as well as assist with investment planning to maximize the incentives granted by the new law.
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 According to the regional agreement for minimum wage in St Petersburg, St Petersburg minimum wage amounted to RUB 8,868 in 2014.
 Investments in new properties and investments in reconstruction and modernization of existing properties are both taken into account.
 Movable properties subject to depreciation as fixed assets included in section Machinery and Equipment and Means of Transportation (except cars) of the Russian Classification of Fixed Assets.