The following article is an excerpt from Awara Russian Tax Guide, the first comprehensive book offering a full overview of all Russian taxation laws and rules. Awara Russian Tax Guide provides insight into the general framework of the Russian tax laws, the Tax Code and its principles. It describes the general rules of the Tax Code Part I and each type of tax and tax regime of Tax Code Part II, among them: Profit Tax, VAT, Personal Income Tax, Property Tax, Employer’s Social Contributions. The book also covers the now so important case law and taxation principles set by court precedents.
The Russian law foresees a range of special tax regimes and a variety of tax concessions and subsidies that enterprises, entrepreneurs and investors may become eligible for. The present chapter will not deal in detail with all the special tax regimes (for a general overview we refer to chapter General About Russian Tax Laws), rather this chapter takes aim at presenting the tax concessions available by discretion of the regional governments as well as the special economic zones and innovation centers. Usually tax concessions are granted by a combination of federal and regional laws and hereby the regions are restricted by federal law in the range and type of tax concessions and subventions they may make available. The Russian Tax Code grants Regions the possibility to extend tax concessions in respect to profit tax, corporate property tax, land tax, and transport tax.
The Tax Code especially prohibits regional authorities (as well as any other authorities) granting individual tax concessions that would benefit a particular firm (art. 56(1)). Tax concessions may only be granted in a general form, such that spells out the conditions under which firms qualify for the concession. (Naturally, there might be a temptation to abuse these rules by framing a concession intended to a particular firm in general terms). In addition to those specified types of tax concessions, regions may stimulate investments by way of subventions. The possibility to grant subventions is foreseen in the Budget Code (see below).
Another possibility of stimulating investments is the granting of a so-called tax credit for investment (Tax Code art. 66 and 67) which represents a possibility to defer tax payments over a certain time by way of agreement with the tax office. However, such tax credits have not been granted to any significant extent.
Regional Tax Concessions
By virtue of the Tax Code the regional governments are vested with certain rights to reduce the tax rates on the regional taxes or the part of a tax that goes to the regional budget as follows.
The total tax rate for the Profit Tax is 20% and it is currently divided between the various levels of government in Russia as follows (art. 284):
- Federal government 2%
- Regional governments 18%
The regional governments are left with the right to reduce the part of the Profit Tax payable to the regional government by 4.5% down to 13.5%. This allows for a maximum reduction of the overall tax rate down to 15.5%.
Regions may reduce the corporate property tax from the maximum rate of 2.2% down to 0% (art. 380). We refer to chapter corporate property tax for further details.
Regarding the details about the possible tax concessions on Transport and Land tax we refer to the relevant chapters.
Governmental Subsidies (State Financial Aid)
Governmental financial aid or subsidies can be granted on various levels of the state hierarchy by Russian Federal Government, the regional government, and a municipal council. The extension of subventions is foreseen by the federal Budget Code, other federal budgetary laws and respective regional as well as municipal laws. Some regions have also enacted special laws on stimulating investment, for example, Moscow Region (N 96/2010-ОЗ of 23.07.2012) and Leningrad Region (N 24-оз of 14.05.2012).
The beneficiaries of the subsidies are categories of organizations (or individual entrepreneurs) defined in the laws (decisions) or named legal entities (especially so in cases of provision of government investing in the capital of firms, “budgetary investments”) A relevant investment agreement is concluded between the authority extending the subsidy and the beneficiary company (or individual entrepreneur). Among other things the law (decision) and the agreements must spell out the amount of subsidies, the purpose for which the subsidies are granted and the conditions for enjoying them. As a rule the granting of a subsidy is preceded by the adoption of a relevant program for economic development or similar policy document.
State financial aid or subsidies can come in the following forms: cash injections, investment in capital, credits from the budget, and state or municipal guarantees.
Various federal laws on state supplies foresee a range of possible benefits for suppliers, these include: subsidies, and subsidized credits etc. Such laws are, for example, Law on State Defense Supplies, Law on State Material Reserve, Law on Purchase and Supply of Agricultural Products, Raw Material and Food Staples for State Needs.
Innovation Centers and Other Special Economic Zones
The possibility for establishing a special economic zone is provided by the law on “On Special Economic Zones in the Russian Federation” (Law of 22 July 2005 No. 116-FZ) and other laws (Law No. 104-FZ of May 31, 1999; Law No. 16-FZ of 10 January 2006; Law on Skolkovo Innovation Center, No. 244-ФЗ; and other laws). The Tax Code also contains special provisions regarding the taxation of the special economic zones.
Presently there are 20 special economic zones as detailed below.
Innovation (technology development) special economic areas:
“Dubna” (Moscow Region)
“Tomsk” (Tomsk Region)
“Zelenograd” (Zelenograd administrative district of Moscow)
“St. Petersburg” (St. Petersburg)
“Innopolis” (Republic of Tatarstan)
Industrial special economic areas:
“Alabuga” (Republic of Tatarstan)
“Lipetsk” (Lipetsk region)
“Togliatti” (Samara region)
“Titanium Valley” (Sverdlovsk region)
“Ludinovo” (Kaluga region)
“Pskov” (Pskov region)
Travel special economic areas:
“Turquoise Katun” (Altai Territory)
“Baikal Harbour” (Buryatia)
“Gate of Baikal” (Irkutsk region)
“Altai Valley” (Altai Republic)
“Tourism Cluster NCFD” (Karachay-Cherkessia, Krasnodar Territory, the Republic of Adygea, Kabardino-Balkaria, North Ossetia – Alania, Dagestan, Ingushetia, Stavropol Territory)
“Russky Island” (Primorsky Krai)
Port special economic areas:
“Ulyanovsk” (Ulyanovsk region)
“Sovetskaya Harbour” (Khabarovsk Territory)
“Murmansk” (Murmansk region)
Residents of innovation centers and special economic zones enjoy a range of tax exemptions. Typically a resident of a special economic zone would be taxed as follows on the example of Zelenograd:
– Profit tax, 13.5% until year 2016 and 18% until 2018; accelerated depreciations; more beneficial treatment of R&D costs
– Land tax, total exemption for 5 years (shipbuilding, 10 years)
– Corporate property tax, total exemption for 10 years (from accounting initiation)
– Transport tax, 0% 5 years (from registration of vehicle)
– VAT 0% (for assets used at Zelenograd; otherwise normal VAT regime)
As a rule the special economic zones for innovation and tourism enjoy benefits for employer’s social contribution as follows: 2011-2017 14%, 2018 – 21%, 2019 – 28% – for up to 563 thousand rubles (in year 2013). (Percentages indicated as total amounts for all three components of the employer’s social contribution).
The tax regimes for Magadan and Kaliningrad special economic zones may differ in many aspects from what is typical for the other zones. And for Skolkovo innovation center an altogether different (even more beneficial) tax regime is in place.
Participants of Skolkovo Innovation Center (upon being granted the official status as such) enjoy tax concessions for 10 years in respect to:
• Profit Tax, 0%
• Corporate property tax;
• VAT, 0% (see below details)
• Land tax, 0%
• Employer’s social contributions 14% for 10 years (payable only to the pension fund, 0% for the social and medical fund; a company loses the right for applying this beneficial regime from the month when annual profit exceeds 300 million rubles)
The exemption on VAT means that such companies do not charge their clients VAT for their services and goods, but they are not exempt of paying the VAT that other vendors charge. These companies also need to pay the VAT at customs in connection with imports. They are, however, given the possibility to reclaim the customs VAT which has been incurred in connection with construction works at the Skolkovo innovation center and equipment used there insofar as they are required for the chartered innovation activity at site. Customs duties can be reclaimed in the same manner.