In an article by Company Lawyer magazine, Alexey Stanchin, head of TC's tax practice, breaks down the key amendments collected in the tax reform under discussion. 

The draft with amendments to the Tax Code is now in the State Duma. The new rules are to come into effect from 2025.

Raising the thresholds for the application of the simplified taxation system, expanding the number of sole proprietorships and organizations entitled to switch to the simplified taxation system

What was before: the threshold for organizations to switch to the simplified taxation system is 112.5 million rubles of income (taking into account the annual increase by the deflator coefficient) at the end of nine months of the year in which the organization submits a notification of the transition to the simplified taxation system (paragraph 2 of Art. 346.12 of the Tax Code of the Russian Federation).

The number of employees of individual entrepreneurs and organizations that declare a transition to the simplified taxation system should not exceed 100 people (subparagraph 15 of paragraph 3 of Art. 346.12 of the Tax Code), and the net book value of fixed assets should not exceed 150 million rubles (subparagraph 16 of paragraph 3 of Art. 346.12 of the Tax Code).

The threshold of annual income to retain the right to apply the simplified taxation system is 200 million rubles (p. 4, 4.1 of Art. 346.13 of the Tax Code of the Russian Federation).

What will be: 

The threshold of transition to the simplified taxation system for organizations increases from 112.5 million rubles to 337.5 million rubles (paragraph 2 of Article 346.12 of the Tax Code of the Russian Federation).

The threshold of the number of employees for transition to the simplified taxation system is increased from 100 people to 130 people (item 15, paragraph 3 of Art. 346.12 of the Tax Code of the Russian Federation).

The threshold of the residual value of fixed assets is increased from 150 million rubles to 200 million rubles (item 16, paragraph 3 of Art. 346.12 of the Tax Code).

The threshold of annual income for retaining the right to apply the simplified taxation system is raised from 200 million rubles to 450 million rubles. If the amount of annual income exceeds 450 million rubles, the taxpayer loses the right to apply the simplified taxation system (paragraph 4.1 of Article 346.13 of the Tax Code of the Russian Federation).

Organizations on the simplified taxation system become liable to pay VAT

What was before: organizations and sole proprietorships are not recognized as VAT payers, except for VAT payable on the importation of goods into the territory of the Russian Federation, as tax agents and under a simple partnership agreement (paragraph 2 of Article 346.11 of the Tax Code of the Russian Federation).

What will be:

Only those organizations and IEs on the simplified taxation system are exempt from VAT, the amount of income of which does not exceed 60 million rubles for one calendar year (Art. 145 of the Tax Code of the Russian Federation). 

The procedure for notification of VAT exemption does not change. 

If it exceeds RUR 60 mln. - Tax is paid at the new reduced VAT rates (paragraph 8 of Article 164 of the Tax Code of the Russian Federation): 

• 5 % - if the amount of income is from RUR 60 million to RUR 250 million;
• 7 % - if the amount of income is from RUR 250 million to RUR 450 million.

If the amount of annual income exceeds 450 million rubles, the taxpayer loses the right to apply the simplified taxation system (paragraph 4.1 of Article 346.13 of the Tax Code of the Russian Federation). VAT is paid at the standard rate of 20%.

Introduction of the concept of «business splitting», normative consolidation of the amnesty on business splitting

What happened before: the concept of «business splitting» is not enshrined in the law.

What will be:

The concepts of «business fragmentation» are introduced (division of a single business activity between several formally independent persons (organizations, individual entrepreneurs), in respect of which control is exercised by the same persons, aimed exclusively or primarily at understating taxes through the application of special tax regimes) and «voluntary refusal to fragment the business» (calculation and payment of taxes by persons applying business fragmentation in the amount determined as a result of the consolidation of income and (or) other indicators).

The business split amnesty applies to the tax years 2022-2024, while voluntary refusal from business splitting is possible in 2025 and 2026. 

The entry into legal force of decisions on the results of tax audits of business splits for 2022-2024 is suspended after the amnesty law enters into force. The taxpayer is given time, a «probationary period», to voluntarily abandon the business split:

• If in 2025-2026 the taxpayer voluntarily refuses to split - all arrears, penalties, fines are removed retrospectively for 2022-2024. 
• If business splitting is detected again, the taxpayer is held liable for both 2022-2024 and 2025-2026.

New progressive personal income tax rate scale

What was before: 2 basic personal income tax rates for tax residents - 13%; and 15% on income exceeding 5 million rubles per year.

What will be:

• 13 % - if the tax base for the year ≤ 2.4 million rubles (i.e. 200 thousand rubles per month);
• 15 % - if the tax base for the year is between 2.4 million rubles and 5 million rubles;
• 18 % - if the tax base for the year is from 5 million rubles to 20 million rubles;
• 20 % - if the tax base for the year is from RUR 20 million to RUR 50 million;  20 % - if the tax base for the year is from RUR 20 million to RUR 50 million;
• 22 % - if the tax base for the year exceeds 50 million rubles. 

A «truncated» progressive personal income tax scale is established for a number of incomes:

• on income from the sale of property, on gifted property, on insurance payments under insurance and pension contracts, on dividends, on interest, on operations with digital financial assets and derivative financial instruments, with securities, with shares in LLCs - two thresholds: 13% (not more than 2.4 million rubles) and 15% (more than 2.4 million rubles) (paragraph 1.1 of Article 224 of the Tax Code of the Russian Federation);
• on the income of participants in a SWO - two thresholds: 13% (not more than 5 million roubles) and 15% (more than 5 million roubles) (item 1.2 of Article 224 of the Tax Code of the Russian Federation).

Restrictions are introduced on the personal income tax benefit on the disposal of shares (interests) of long-term ownership

What used to be:

Income received from the sale (redemption) of participatory interests in the authorized capital of Russian organizations, as well as shares specified in paragraph 2 of Article 284.2 of the Tax Code of the Russian Federation, is exempt from taxation, provided that on the date of sale (redemption) of such shares (participatory interests) they have been continuously owned by the taxpayer by virtue of ownership or other proprietary right for more than five years (paragraph 1 of paragraph 17.2 of Article 217 ).

What will happen:

The reform implies limitation of the right to apply tax preferences in the form of exemption from personal income tax in case of long-term (more than 5 years) ownership of securities and shares in the authorized capital, if the relevant income exceeds 50 million rubles for a tax period. 

The norm of item 17.2 of Article 217 of the Tax Code of the Russian Federation is supplemented with an exception: exemption from personal income tax does not apply to the amount of the part of the tax base exceeding 50 million rubles.

In addition, now the benefit is limited only to resident taxpayers: "income received by a taxpayer recognized as a tax resident of the Russian Federation" is exempt from taxation (paragraph 1 of item 17.2 of Article 217 of the Tax Code).

This will severely limit some opportunities for business structuring or at least make M&A transactions more expensive.

Changes to the procedure for calculating the fixed profit of a CFC

What was before: the fixed amount of profit is set at RUB 34,000,000 (2021 and subsequent years) regardless of the number of controlled foreign companies owned by one controlling person (clause 2 of Article 227.2 of the Tax Code of the Russian Federation).

What will be: for tax periods beginning with the 2025 tax period, the fixed amount of profit is set in the following amounts:

• where a taxpayer who has switched to paying tax on fixed profit is a controlling person of one CFC, - 27,990,000 roubles;
• of two CFCs - 52,718,000 roubles;
• of three or more CFCs, - 22,727,300 roubles for each subsequent CFC (paragraph 2 of Article 227.2 of the Tax Code of the Russian Federation).

Now it will be more profitable for some to abandon this model, as the main motive was to pay tax without burdening themselves with the administrative burden of complying with the CFC rules. Since many of these companies are unprofitable or KIC profits were much less than the specified fixed profit.

Raising the profit tax rate to 25%

What was before: the basic profit tax rate is 20%, of which 3% is the tax rate for the federal budget and 17% for the budgets of the constituent entities of the Russian Federation (Clause 1, Article 284 of the Tax Code of the Russian Federation).

What happens:

The basic income tax rate is raised to 25%.

The tax rate for the budgets of constituent entities of the Russian Federation remains the same (17%). The tax rate for the federal budget is raised to 8% (clause 1 of Article 284 of the Tax Code of the Russian Federation).

Reduction of profit tax exemptions for IT companies

What was before: a 0% income tax rate in 2022-2024 for accredited Russian IT companies (clause 1.15 of Article 284 of the Russian Tax Code).

What will happen:

In 2025-2027, the profit tax rate rises to 5%:

• 5% - on tax subject to enrollment in the federal budget;
• 0% - for tax subject to enrollment in the budget of a constituent entity of the Russian Federation.

Introduction of the federal investment tax deduction for profits tax

What came before: there are no analogs; a new article, Article 286.2 of the Tax Code, will be introduced.

What will be:

The norm is «framework», devoid of specifics: according to the draft law, the Russian Government at the level of Resolutions will determine the categories of taxpayers who can apply the deduction; categories of fixed assets and intangible assets to which the deduction applies; the procedure and conditions for applying the deduction; the procedure for determining the amount of the deduction (paragraph 3 of Article 286.2 of the Tax Code).

The new deduction is applied to fixed assets and amortizable intangible assets in the amount not exceeding 50% of the initial value of these amortizable assets (clause 4 of Article 286.2 of the Tax Code of the Russian Federation).

New corporate property tax rates for real estate worth over 300 million rubles

What was before: real estate with a cadastral value of over 300 million rubles is subject to corporate property tax at general rates, not exceeding 2.2% (clause 1 of Article 380 of the Tax Code of the Russian Federation). 

What will happen:

A new norm is introduced, according to which in respect of real estate objects with a cadastral value of over 300 million rubles, tax rates are established by the laws of the subjects of the Russian Federation and cannot exceed 2.5% (paragraph 1.3 of Art. 380 of the Tax Code of the Russian Federation).

Changes in excise duties on alcohol for pharmaceutical companies

What was before: only «ethyl alcohol» was recognized as excisable goods (subparagraphs 5, paragraph 1, subparagraph 5, paragraph 4, Article 179.2 of the Tax Code of the Russian Federation).

What will be:

Provision is made for the recognition as excisable goods of the pharmaceutical substance of ethyl alcohol, as well as alcohol-containing medicinal preparations not included in the relevant List approved by the Government of the Russian Federation, and the pharmaceutical substance of ethyl alcohol. 

The rate of excise duty on the pharmaceutical substance of ethyl alcohol shipped to manufacturers of pharmaceutical products that have obtained the relevant certificate from the tax authority, pharmacy and medical organizations is set at RUB 0.

Manufactured and sold medicines and pharmaceuticals recognized as excisable goods are exempt from taxation provided that excise duty is calculated upon acquisition (receipt) of the pharmaceutical substance of ethyl alcohol used for their manufacture.

In addition, pharmacies that manufacture prescription medicines recognized as excisable goods are exempt from taxation. 

Exemption under the simplified taxation system from VAT is possible if the taxpayer does not use excisable goods. The absence of excise taxation or 0% rate is not the absence of the use of excisable goods in turnover, so it is possible that some taxpayers may have to reorganize their assortment or structure.