On 29 October 2024, Federal Law No. 362-FZ* (the “Law”) was enacted, introducing comprehensive changes to tax legislation in line with parameters set for the federal budget for 2025 and the planning period of 2026 and 2027.
As anticipated, the autumn session sees legislators continue to “fine-tune” the tax system in the context of an extensive tax reform, the main aspects of which were covered in our previous review.
Tax administration
According to the new amendments, in 2025, penalties for late fulfilment of tax obligations will be calculated using the following special rules:
From 9 March 2022 through to the end of 2024, a moratorium on this doubling was implemented to alleviate the financial impact of material increase of the CBR key rate on taxpayers.
The new amendments in the Law represent a compromise, helping the taxpayers to return to general penalty calculation rules while acknowledging the continued trend of rising the key rate. CBR raised it to 21% by its last decision* and may increase it further in future.
The Law also clarifies that penalties will not be charged on arrears that do not exceed the positive balance of a taxpayer's Unified Tax Code. This particular stipulation previously had been omitted during the transition to the new Unified Tax Code payment rules.
Personal income tax
From 1 January 2025, the Law will tax income in form of material benefit received through the acquisition of securities and shares in Russian companies at a rate of 13% / 15%.
It should be noted that the five-tiered income tax scale, set to take effect on 1 January 2025, applies to most forms of active income. However, a two-tiered rate of 13% / 15% remains for certain passive incomes of tax residents.
Previously, material benefit from acquiring stakes in Russian companies were not explicitly taxed as passive income at special rates of 13% / 15%, making them subject to the general five-tier scale.
The amendments are obviously intended to alleviate the tax consequences for recipients of income in the form of such material benefit, given that until 1 January 2025 income in the form of material benefit on the acquisition of stakes in Russian companies was not defined, and a moratorium on material benefit on securities was in force until 1 January 2024. Earlier we wrote that the tightening of the rules on the taxation of income in the form of material benefit may significantly affect transactions involving the purchase of stakes in Russian businesses by local management (MBOs).
The Law also establishes the possibility to reduce the tax base for income derived from the sale of participatory interests in the charter capital of Russian organisations, up to the amount of allowable deductions. This provision disappeared in the new wording of Article 210 of the Tax Code adopted as part of the tax reform and was restored in the wording of the Law.
Additionally, material benefit received from savings on interest under a loan or credit agreement entered into before 31 December 2024 for purchase or construction of housing is now exempt from tax, provided the taxpayer qualifies for a property tax deduction.
Corporate income tax
The Law introduces anticipated changes to the application of the Federal Investment Tax Deduction (the “FITD”), a new tax relief mechanism for investors introduced in the reform.
The Law now allows assets subject to FITD to also be eligible for depreciation (including a depreciation premium), which was previously prohibited.
Depreciable assets to which FITD is applied will be included in depreciation groups at their historical cost, adjusted for the amount of FITD. Expenses incurred in completing, retrofitting, or upgrading these assets will also be reduced by the FITD amount.
FITD, however, does not apply where original cost is formed with the use of the increasing coefficients determined in the tax legislation.
Further clarifications on FITD parameters are being developed, with the Government of the Russian Federation submitting a draft* of the relevant regulatory act.
These legislative changes aim to enhance the competitiveness of FITD, which previously disallowed application of depreciation to the assets benefitting from FITD. According to experts' estimates, given the parameters of FITD application presented at the moment, in the absence of the possibility to depreciate the named property, FITD was struggling to compete with standard depreciation mechanisms.
Corporate property tax
The Law introduces a corporate property tax exemption for specific electric power facilities. The list of exempt property includes power transmission lines, transformer and other substations, distribution points (with limitation of voltage class), as well as equipment designed to ensure electrical connections and transmission of electricity, regardless of voltage class.
These changes demonstrate the legislator's reaction to the existing heterogeneity of law enforcement practice on the issues of differentiation between movable and immovable property, noted in our recent article*, and are intended to help elaborate a uniform approach to taxation of certain types of equipment.
In an interesting development, solar power plants are now exempt, reflecting both a trend towards renewable energy support and an ongoing legal debate over their classification (LUKOIL-Ecoenergo* case), which is currently before the Supreme Court of the Russian Federation.
Changes for simplified taxation system payers
The Law releases simplified taxpayers, who will be exempt from VAT from 1 January 2025 in accordance with the new rules described in our review, from the obligation to prepare VAT invoices. This will help reduce the administrative burden on affected taxpayers.
The Law also clarifies VAT deduction rules for goods, works, and services acquired before 1 January 2025, supplementing the Federal Tax Service’s recent guidance* for new VAT payers under the simplified taxation system.
Moreover, when simplified taxation system payers relocate to a region with more favourable tax rates, they must continue to pay tax at the previous region’s rate for three consecutive tax periods, starting from the period in which the relocation took place. This measure aims to prevent tax abuse through relocation to regions with reduced rates.
Finally, the experimental automatic simplified tax system initially tested in Moscow, the Moscow Region, the Kaluga Region, and the Republic of Tatarstan will now be available to other Russian regions, which may implement the automatic simplified taxation system regime through regional legislation.
***
In addition to the changes outlined above, the Law includes clarifications on other tax legislation, covering excise duties, state duties, mineral extraction tax, tourist tax, and insurance premiums.
Our tax specialists are closely monitoring these updates to the tax system and are ready to assist with any questions or guidance needed for compliance with the new regulations.
* In Russian
Co-authored by Viktoria Tikhonova, Paralegal in Tax, and Georgy Daneliya, Counsel, Head of Asian Initiative.
The material is also available in Russian, Chinese and Japanese.
Maria Kabanova
Counsel
