2021 Tax Guideline for Russia

On January 01, 2021 Federal Law No. 259-FZ of 31.07.2020 came into force. The law regulates the relations involving the issue, accounting and circulation of digital assets and digital currency in the Russian Federation. The provisions of the Law are not applicable to the circulation of non-cash funds, electronic money, as well as for the issue, accounting and circulation of uncertified securities.

In accordance with paragraph 2 of Art. 1 of the Federal Law No. 259-FZ of 31.07.2020, digital financial assets are digital rights, including monetary claims, the ability to exercise rights to equity securities, the right to participate in the capital of a non-public JSC, the right to demand the transfer of equity securities, which are provided for by the decision on the issue of digital financial assets, the issue, accounting and circulation of which is only possible by making (changing) records in an information system based on a distributed register, as well as in other information systems.

For the purposes of the “anti-money laundering” Federal Law No. 115-FZ dated 07.08.2001, digital currency is recognized as property.

For 2019, small businesses entities were entitled to submit a mandatory copy of a statement either in printed or electronic format (as per clause 4 of Federal Law No. 444-FZ of 28.11.2018).

Starting with the annual accounting (financial) statements for 2020, there is no such choice. All entities, including small businesses entities, must submit mandatory copies of statutory reports only in electronic form. The Tax Inspectorate will otherwise refuse to accept the non-compliant reports. (Letter of the Ministry of Finance of Russia and the Federal Tax Service of Russia No. 07-04-07 / 110599 / VD-4-1 / 20793@ of December 17, 2020).

Recognised losses for book publishers and media entities

Starting from January 1, 2021, book publishers and media entities have the right to recognise losses in the form of the value of products which are defective, or rendered unmarketable, as well as those unsold, in an amount not exceeding 30% of the print run value. (subparagraph 44, paragraph 1 of article 264 of the Tax Code of the Russian Federation as amended by Federal Law No. 323-FZ of 15.10.2020). The maximum limit was 10% before the change.

Lower profit tax rate for IT companies

From January 1, 2021, Art. 284 of the Tax Code of the Russian Federation was supplemented with clauses 1.15 and 1.16. By virtue of these amendments, Russian IT companies operating in the field of information technology (this covers the development of computer software, the provision of services for its adaptation, modification, installation, testing, maintenance, as well as design and development of electronic components and electronic and radio-electronic products) are entitled to pay profit tax at a rate of 3% (to the federal budget) and 0% (to the regional budget). This entitlement is based on Federal Law No. 265-FZ of 31.07.2020.

The Russian legislation regulating VAT has brought a number of changes for 2021 on the taxation of goods and services. Taxpayers are facing new exemptions from VAT on some transactions, such as exclusive rights to computer programs and databases included in the unified register of Russian computer programs, exclusive rights to inventions, utility models, industrial designs, integrated circuit topologies, trade secrets (know-how) and more. On the other hand, the transfer of rights to use Russian and foreign software that is not included in the unified register of Russian computer programs and databases is subject to VAT in the manner prescribed by the Tax Code.

Starting from 1.1.2021 new items were added to the list of goods, works and services of which the cycle of production, execution and provision exceeds 6 months. These include:

• construction of buildings and engineering structures
• dismantling and demolition of buildings
• construction site clearing
• drainage works on agricultural land, forest land, as well as on construction sites
• earthworks
• electrical, sanitation and other construction and installation works
• building finishing works
• other specialized construction works
• activities in the areas of architecture, engineering surveys and technical consulting

With emerging digitalization, retail trade entities can issue VAT refund checks in electronic form when selling goods to foreign citizens. The exchange of information between stores, persons providing services to foreigners subject to VAT, the tax and the customs authorities is also carried out in an electronic form.

Also, a new VAT form is available, designed to bring the reporting in line with the changes that came into force with the Federal Law No. 69-FZ of 01.04.2020 “On the Protection and Promotion of Capital Investments in the Russian Federation”, as well as in connection with updates of VAT relief and some types of operations codes. The updated form must be used starting with the returns for the Q4 of 2020.

Furthermore, a new clause stipulates that the incorrect filing of tax return is from now considered as if it was not submitted. In such case, the tax inspector notifies the taxpayer about the breach, giving 5 days to eliminate the identified issues.

For a more detailed summary, please refer to our latest article on VAT changes in Russia for 2021.

New PIT rate

From January 1, 2021, a new personal income tax rate of 15% has been introduced for tax residents. It applies to income in excess of RUB 5 million for the tax period. (Clause 1 of Article 224 of the Tax Code of the Russian Federation as amended by Federal Law No. 372-FZ dated 23.11.2020).

A formula to illustrate the new tax bracket looks as follows:

5 million rubles х 13% + income exceeding 5 million rubles x 15%.

Personal income tax is paid at the place of registration of the tax agent to different Budget Classification Codes:

• 182 1 01 02010 01 0000 110 – for the tax due from the tax base of up to 5 million rubles, calculated at the rate of 13%
• 182 1 01 02080 01 0000 110 – for the tax due from the tax base exceeding 5 million rubles, calculated at the rate of 15%

Examples of filling out Form 6-NDFL pursuant to the new rules, are given in the Letter of the Federal Tax Service of Russia No. BS-4-11 / 19702 @ dated 01.12.2020.

New rules for tax residency

A special procedure for recognizing individuals as tax residents of the Russian Federation is in effect for 2020. Pursuant to the new clause 2.2 of Art. 207 of the Tax Code of the Russian Federation, an individual who in the period from January 1 to December 31, 2020 is actually located in the Russian Federation for 90 to 182 calendar days is recognized as a tax resident of the Russian Federation in the tax period of 2020, conditional upon submission (by such an individual) of an application made out in ad hoc form to the Tax Inspectorate. An application is required no later than April 30, 2021 (clause 2.2 of article 207 of the Tax Code of the Russian Federation).

In 2020 the tax legislation does not allow a tax agent to recalculate the tax liabilities due to a change in the tax agent’s tax status resulting from actually staying in the Russian Federation from 90 to 182 calendar days in the period from January 1 to December 31, 2020. (Letter of the Federal Tax Service of Russia No. BS-4-11 / 20829 @ of 17.12.2020). If, at the end of the year, the Tax Inspectorate should conclude that the individual may be recognized as a tax resident of the Russian Federation, the tax overpayment will be refunded by the Tax Inspectorate directly to the individual.

Switching to a centralized procedure for PIT

Tax agents wishing to switch to a centralized procedure for paying personal income tax and submitting tax returns from January 1, 2021 (clause 2 of Article 230 of the Tax Code as amended by Federal Law No. 325-FZ dated 29.12.2019) must notify the tax service of their choice before January 11, 2021. The form was approved by order of the Federal Tax Service of Russia No. ММВ-7-11 / 622 @ dated 06.12.2019. The title page must indicate:

• the tax period from which the transition is made
• the code of the Tax Inspectorate where the tax will be paid and reported by the parent organization or the organization’s separate unit
• the Incorporation Reason Code (KPP) of the parent organization or the organization’s separate unit
• the reason for the notification

There are two allowed ways for a tax agent to notify the State Tax Service of the switch: electronically or in writing (by mail). In order to avoid under- or overpayment of personal income tax, tax remittances must be made from January 1, 2021 using the payment details of the selected entity. If the payment was made before the notification was submitted, then the organization has the right to clarify the payment by sending a corresponding application with the adjusted specific payment details:

• TIN, KPP and name of the beneficiary
• KPP of the payer

If a tax agent informed the State Tax Service of switching to a centralized procedure for paying personal income tax back in 2020 and plans to continue with this procedure going forward, no further notification is required.

In the event a tax agent decides to discontinue paying personal income tax in a centralized manner, a notification of this decision is obligatory. The deadline is January 11, 2021. In the notification of the choice of the tax inspectorate, it is necessary to put the code “03” (Information of the Federal Tax Service of Russia dated 12/11/2020).

No more tax notifications on PIT advance payments

From January 1, 2021, the Order of the Ministry of Finance of Russia dated June 22, 2020 No. 114n entered into force, according to which the tax inspectorates loose the authority to send tax notifications to taxpayers on the payment of personal income tax from the estimated income. The reason for the change is that from January 1, 2020 individual entrepreneurs and other individuals engaged in private practice calculate their own advance payments of personal income tax, based on the income actually received and the tax deductions used (clause 7 of article 227 of the Tax Code of the Russian Federation as amended by the Federal Law No. 63-FZ of 04/15/2019).

Amendment to Form 3-NDFL

There have been updates to Form 3-NDFL, as well as the procedure for filling in and submitting the Form (Order of the Federal Tax Service of Russia No. ED-7-11 / 615 @dated 28.08.2020). The amended Form should be used starting with submission for the tax period of 2020 (clause 2 of the Order of the Federal Tax Service of Russia No. ED-7-11 / 615 @ dated 28.08.2020).

New types of remote work in the Labor Code

From January 1, 2021, new types of remote work have appeared in the Labor Code of the Russian Federation: temporary and combined (Article 312.1 of the Labor Code of the Russian Federation as amended by Federal Law No. 407-FZ of 08.12.2020).

New dates for days-off in 2021

In order to harmonize the use weekends and non-working holidays by employees, some days off in 2021 were moved (Resolution of the Government of the Russian Federation No. 1648 dated 10.10.2020): January 2 to November 5, January 3 to December 31, February 20 to February 22.

Changes regarding the payment of insurance benefits

From January 1, 2021, the Social Insurance Fund of Russia pays out insurance benefits in case of temporary disability or in connection with maternity, or with industrial accidents and occupational disease in a new way: directly to insured persons.

The pilot project was carried out in several regions and proved successful. Now this process has been introduced in 8 more constituent entities of the Russian Federation, including Moscow and St. Petersburg (on the project level). The Form 4-FSS will be amended to reflect the changes.

Cancelled declaration submissions on transport and land taxes

From January 1, 2021, organizations no longer need to submit declarations on transport and land taxes. At the end of the year 2020, the Federal Tax Service will not require the data either (clause 9 of the Federal Law No. 63-FZ of 15.04.2019, Letter of the Federal Tax Service of Russia No. BS-4-21 / 7176 @ dated 17.04.2019). The old forms will no longer be accepted (clause 1 of the Order of the Federal Tax Service of Russia No. ММВ-7-21 / 440 @ dated 09/04/2019).

Tax inspectors will calculate the transport tax based on the documents and information they have in their possession, and will  then send a notification to the taxpayer by the following deadlines (new clause 4 of article 363 of the Tax Code of the Russian Federation was introduced by Federal Law No. 63-FZ of 15.04.2019):

• within 10 days of the date of the notification of the calculated amount of tax to be paid for the expired tax period, but not later than six months from the established deadline for payment of tax for the relevant tax period
• not later than 2 months from the date of receipt by the tax authority of documents and / or other information entailing the calculation (recalculation) of the amount of tax payable by the relevant taxpayer for previous tax periods
• no later than 1 month from the date of receipt by the tax authority of the information contained in the unified state register of legal entities that the relevant organization is in the process of liquidation

A similar procedure for interaction between the Federal Tax Service and companies is also envisioned with respect to the land tax (Letter of the Federal Tax Service of Russia No. BS-4-21 / 7176 @ dated April 17, 2019).

The Ministry of Economic Development of the Russian Federation has approved the deflator coefficients for 2021. The Order 2020 No. 720 of October 30 established the following deflator values:

• 1,032 – for Simplified Taxation System
• 1,637 – for Patent System of Taxation

From 2021, UTII (Unified Tax on Imputed Income) was canceled (clause 8 of article 5 of the Federal Law No. 97-FZ of 29.06.2012, Letter of the Ministry of Finance of Russia No. 06-04-11 / 52839 of 17.07.2019). The Government of the Russian Federation decided not to extend that taxation system due to a deteriorating situation caused by the spread of COVID-19 (Letter of the Ministry of Finance of Russia No. 03-11-11 / 108461 of 11.12.2020, Letter of the Ministry of Finance of Russia No. 03-11-06 / 3/95102 of 02.11.2020, Letter of the Ministry of Finance of Russia No. 03-11-06/3/81970 dated 17.09.2020, Letter of the Ministry of Finance of Russia No. 03-11-11 / 63669 of 22.07.2020).

Due to the abolition of UTII, users of cash registers should not forget to change the taxation regime configured in their cash registers. The FTS website has a special service for this purpose.

One can switch to another taxation regime from UTII, for example, to PTS (Patent Taxation System). The following arguments speak in favor of the PTS:

• Firstly, individual entrepreneurs have the right to deduct from the amount of tax payable under PTS the amounts of insurance payments (contributions) and benefits accrued for the relevant tax period, similarly to the deductions that were available under UTII (new clause 1.2 of Art. 346.51 of the Tax Code of the Russian Federation introduced by Federal Law No. 373-FZ of 23.11.2020, Letter of the Ministry of Finance of Russia No. 03-11-11 / 108433 of 11.12.2020);
• secondly, since 2021, the list of activities in respect of which it is allowed to apply the PTS has been expanded (subparagraph 1 of paragraph 2 of article 346.43 of the Tax Code of the Russian Federation as amended by Federal Law No. 373-FZ of 23.11.2020).

The PTS application form is being developed. Meanwhile, the Federal Tax Service of Russia recommends using the form KND 1150010 (Letter of the Federal Tax Service of Russia No. SD-4-3 / 20508 @ of 11.12.2020).

Pursuant to Paragraph 3 of Art. 346.45 of the Tax Code of the Russian Federation, the Tax Inspectorate must issue/send the patent to the individual entrepreneur or notify same of a refusal, within five working days from the date of receipt of an application for a patent. To ensure a “seamless” transition from UTII to PSN through applications for a patent, tax inspectors shall issue a patent or notify the applicant of a refusal no later than the day following the day the application is received via telecommunication links or through Personal Cabinet of Individual Entrepreneur. These are temporary rules for applications sent before March 31, 2021 (Letter of the Federal Tax Service of Russia No. SD-4-3 / 19994 of 04.12.2020).

New maximum tax base for insurance contributions

The maximum tax base amounts for calculating insurance contributions in 2021 have been set as follows:

• for contributions to the Pension Fund of the Russian Federation: 1,465,000 rubles,
• to the Social Insurance Fund – 966,000 rubles (Decree of the Government of the Russian Federation No. 1935 of 26.11.2020).

The contribution rates for insurance against industrial accidents and occupational disease will remain the same as in 2020 (Federal Law No. 434-FZ of 22.12.2020).

Lower contribution rates for small or medium-sized businesses

From January 1, 2021, Paragraph 1 of Art. 427 of the Tax Code of the Russian Federation is supplemented by sub. 17, which stipulates the right to lower rates of insurance contributions for payers of insurance contributions recognized as small or medium-sized businesses in accordance with Federal Law No. 209-FZ of July 24, 2007. They apply to the part of remuneration of an individual, determined at the end of each calendar month, which exceeds the minimum wage established by federal law in effect at the beginning of the respective pay period. The changes were introduced by Federal Law No. 102-FZ of 01.04.2020.

Reduced contribution rates in the IT sector

From January 1, 2021, some taxpayers in the IT sector have received a perpetual right to apply reduced insurance contribution rates:

• 6% for compulsory pension insurance
• 5% for compulsory social insurance for temporary disability and in connection with maternity
• 1% for compulsory medical insurance

The grounds are provided by sub. 1.1 paragraph 2 of Art. 427 of the Tax Code of the Russian Federation as amended by Federal Law No. 265-FZ of 31.07.2020.

Companies in the IT industry may pay insurance contributions at reduced rates if they meet all three conditions stipulated in clause 5 of Art. 427 of the Tax Code of the Russian Federation (as amended by Federal Law No. 265-FZ of 31.07.2020). To enjoy reduced insurance contribution rates in 2021, the company must meet the condition on the share of income from activities in the field of information technology in the period of January through September 2020 (while complying with the two other requirements set forth in Clause 5 of Article 417 of the Tax Code of the Russian Federation). There is no need to notify the Federal Tax Service of the application of reduced tariffs (Letter of the Ministry of Finance of Russia No. 03-03-06/1/101948 of 23.11.2020).

Overpaid compulsory pension contributions no longer refunded

From January 1, 2021, overpaid (excessively collected) insurance contributions for compulsory pension insurance are not refunded if, according to the information of the territorial branch of the Pension Fund of the Russian Federation, they are taken into account in the individual part of the tariff on the individual personal account of the insured person, who at the time of filing an application for a refund, already receives insurance pension assigned pursuant to Federal Law No. 400-FZ of 28.12.2013 “On Insurance Pensions” (clause 6.1 of article 78 of the Tax Code of the Russian Federation and paragraph 3 of clause 1.1 of article 79 of the Tax Code of the Russian Federation as amended by the Federal Law No. 312-FZ of 01.10.2020).

Abolition of the form on average employee count

From January 1, 2021, the Form and format of information on the average number of employees were abolished (Order of the Federal Tax Service of Russia 2020 No. ЕД-7-11 / 752 @ of 15.10.2020, Order of the Federal Tax Service of Russia dated No. ЕД-7-26 / 813 @ of 12.11.2020). The data should be presented as part of the calculation of insurance contributions (Order of the Federal Tax Service of Russia No. ED-7-11/751 @ of 15.10.2020). The new RSV form shall be used starting with the reporting the period of 2020 (clause 2 of the Order of the Federal Tax Service of Russia No. ED-7-11/751 @ of 15.10.2020).

New double tax treaties

In 2020, Russia signed protocols to the Agreements on the avoidance of double taxation (DTT) with Cyprus, Luxembourg and Malta, which stipulate an increase of the withholding tax rate on dividend and interest payments to 15%, starting from January 1, 2021. There were plans to introduce similar amendments to the DTT with the Netherlands, but so far the negotiations have not led to an agreement between the parties. In this connection, on December 4, 2020, the Ministry of Finance of Russia announced the denunciation of the DTT with the Netherlands.

New additions to the list of states with automatic financial data exchange

The Federal Tax Service of Russia has approved a new list of states (territories) with which it will automatically exchange financial information (Order of the Federal Tax Service of Russia No. ED-7-17/788 @ of 03.11.2020). As of December 21, 2020, there are 79 states on that list (Australia, Andorra, Austria, Antigua and Barbuda, Azerbaijan, Argentina, Aruba, Bahamas, Barbados, Bahrain, Belize, Belgium, Bulgaria, Brazil, Vanuatu, Vienna, Ghana, Germany, Grenada, Greece, Denmark, Dominica, Israel, India , Indonesia, Ireland, Iceland, Spain, Italy, Qatar, Cyprus, China, Colombia, Republic of Korea, Costa Rica, Kuwait, Latvia, Lebanon, Liechtenstein, Luxembourg, Mauritius, Marshall Islands, Malaysia, Malta, Mexico, Monaco, Nauru , Nigeria, Netherlands, New Zealand, Norway, United Arab Emirates, Pakistan, Panama, Poland, Portugal, Romania, Samoa, San Marino, Saudi Arabia, Seychelles, Saint Vincent and the Grenadines, Saint Lucia, Saint Kitts and Nevis , Singapore, Slovakia, Slovenia, Turkey, Uruguay, Finland, France, Croatia, Czech Republic, Chile, Switzerland, Sweden, Estonia, South Africa, Japan), as well as 12 territories:

• Bermuda
• British Virgin Islands
• Gibraltar
• Hong Kong
• Greenland
• Curacao
• Macau
• Montserrat
• Cayman Islands
• Cook Islands
• Turks and Caicos Islands
• Faroe islands

Adjusted list of foreign states for exchanging country reports

The Federal Tax Service of Russia has also adjusted the List of foreign states (territories) with whose competent authorities it exchanges country reports (Order of the Federal Tax Service of Russia No. ED-7-17/789 @ of 03.11.2020). As of December 21, 2020, there are 63 countries on that list: (Australia, Austria, Andorra, Argentina, Bahamas, Belize, Belgium, Bulgaria, Brazil, Hungary, Germany, Greece, Denmark, India, Indonesia, Ireland, Iceland, Spain, Italy, Qatar, Cyprus, China, Colombia, Republic of Korea, Republic of Costa Rica, Latvia, Lithuania, Liechtenstein, Luxembourg, Mauritius, Malaysia, Malta, Mexico, Monaco, Nigeria, Netherlands, New Zealand, Norway, United Arab Emirates, Pakistan, Panama, Peru, Poland, Portugal, Romania, San Marino, Saudi Arabia, Seychelles, Singapore, Slovakia, Slovenia, United Kingdom, Uruguay, Finland, France, Croatia, Czech Republic, Chile, Switzerland, Sweden, Estonia, South Africa, Japan), as well as 8 territories:

• Anguilla
• Bermuda
• British Virgin Islands
• Hong Kong
• Curacao
• Cayman Islands
• Separate administrative divisions of the United Kingdom of Great Britain and Northern Ireland (Isle of Man and Channel Islands)
• Terke and Caicos Islands

For 2021, some specific rules for drawing up of annual plans for conducting tax audits of legal entities and individual entrepreneurs were approved (Decree of the Government of the Russian Federation of November 30, 2020 No. 1969). Certain restrictions have been established. Yet, the tax authorities are allowed to conduct the audits using remote communication means, including audio or video communications. In the event a scheduled inspection is replaced by an inspection visit, the said decree obliges the tax authority to notify the inspected company/individual within 10 working days of the relevant decision.