Coming Changes in Taxation
- By Lea Krank
- Nov. 26 2009 00:00
Many changes are planned to be in force from the beginning of next year in tax legislation and other laws affecting business in Russia. Consulting companies are busy advising their clients how to be prepared for these changes.
The regressive scale of the social tax will be canceled and instead there will be contributions paid to Pension, Social and Medical Funds, not to the Tax Service. The funds will be monitoring the payments and performing audits. Contributions will be charged until the accumulated income per employee exceeds 415,000 rubles ($14,422). This limit of 415,000 rubles can be adjusted every year, depending on the inflation rate.
Other new rules for social tax and contributions include: all kinds of salary payments will be liable to contributions, for example, salary payments, deemed as nondeductible costs at profit tax calculation, compensatory payments which are exempt from taxation now such as unused vacation paid at dismissal of employee, unused additional vacation stipulated by labor contract, and additional payments to employees working in harmful conditions.
In some cases this change means deduction of the tax burden on the company since foreign exchange payments to foreigners temporary staying in Russia are not liable to Social Contributions.
The impact on the company’s budget and tax burden depends on the salary level paid to each employee:
• For salaries of less than 2,000 rubles per month there will be no impact.
• For salaries of 24,000 to 62,000 rubles per month the tax burden will be increased. Maximum increase, 21,000 rubles, will be for salaries of 35,000 rubles per month.
For salaries of more than 63,000 rubles per month the tax burden will be decreased.
In 2011, however, the tax burden of all companies will increase.
Profit tax changes from Jan. 1 2010 include, for example, limits for tax-deductible loan interests equal to the refinance rate of Central Bank (now 9.5 percent) multiplied by 1.1 for ruble loans, and 15 percent for euro loans.
By purchasing a house on a land plot or land plot for construction of a house, taxable income can be decreased by 2,000,000 rubles. Mortgage interests can be deducted from taxable income without limitations. If the mortgage interests are lower than the refinancing rate of Central Bank of Russia for ruble loans or 9 percent for foreign currency loans, material gain is free of tax. Also when selling a car, if the car was registered to the same person for at least three years, income from its sale is free of tax.
Other probable changes in taxation are a possible increase in fines from the beginning of 2010 and the terms for VAT refund can be accelerated. If the VAT-deductions exceed VAT-charges then the VAT will be returned to the company straight after tax declaration submission and the tax check will be conducted afterwards. Unconfirmed VAT-deductions will be claimed back with penalties.
Development plans of the tax system for 2010-2011
1. Complete revision in transfer pricing rules (need to comply with OECD TP guidelines; draft of the new law coming into force 2010, including two profit based plus one processed product price based methods)
2. Tax consolidation for profit tax purposes (not applicable to internal transactions, no transfer pricing adjustments possible; international standards, EU development)
3. Tax changes for operations in the stock markets
4. Regulations to foreign companies (capital export neutrality; dividend tax 0 percent, if investment is minimum 500 million rubles)
5. Tax incentive for IT sector and other innovative sectors (VAT exemption concerning software licenses and technical devises; tax benefits)
6. International cooperation and exchange of information with foreign tax authorities (grey import; transfer prices; bank account information; tax contract benefits etc.)
• Foreign currency control
Foreign currency control in Russia is a part of Statutory Financial Budget supervision, Rosfinnadzor. In February 2009 the government decree, called the “order of presentation of documents and information by foreign currency control agents to the Government Supervising authority,” was given. The foreign currency control agents meant are banks, tax office and customs. The most typical mistakes are violations of terms of handing documents to the bank:
• Passport of the deal — before the first currency operation
• Information about each currency operation — seven days after receiving foreign currency in the bank account of a resident
• Information about payments in rubles under deal with non-resident — 15th day of the next month
• Customs declaration under export or import (even if the payment is not realized yet) — 15 days after the date of the customs declaration
• Acts under service agreement (even if the payment is not realized yet) — 15th day of the next month
Also deals made with foreign representative offices located in Russia in rubles belong under the currency control.
Penalties for violations of currency control rules are very high. For example, if a company doesn’t present the documents listed above to the bank in time, the penalty can be as high as 40,000 to 50,000 rubles per document. Or if a resident company has paid in advance to a nonresident and the service or goods have not been delivered, but the advance payment has not been returned, the penalty can be 75 percent to 100 percent of the advance payment. If there is no person in the company who appointed responsible for foreign currency control issues, there is a risk that this kind of costly mistake will happen.