Income tax exemption for RIP participants,

In the current economic conditions, it is not superfluous to recall the tax mechanisms that make it possible to reduce the tax burden when investing in production activities. Tax legislation provides for the right of investors to apply for profit tax benefits for the implementation of projects for the production of goods in some regions of the Russian Federation, for example: Khabarovsk Krai, Sakhalin Oblast, Republic of Tuva, etc. At the moment this privilege applies in 14 subjects of the Russian Federation. 

 The mechanism for granting benefits to RIP participants is carried out through joint legal regulation of the RF and its subjects. The profit tax privilege consists in the application of a 0% rate in regard to payments to be credited to the federal budget and a lower rate for the budgets of the subjects. 

The Tax Code establishes only the minimum RIP requirements, upon meeting which an investor has the right to apply for tax benefits. At the same time, the law of a constituent entity of the Russian Federation may supplement and specify these requirements. 

Russian organizations that meet the following requirements may take part in the project:

• state registration in the territory of the RF subject where the RIP is implemented;
• application of the general system of taxation;
• absence of separate subdivisions situated beyond the territory of the RF subject;
• the organization is not a resident of any type of special economic zone.

In general, the mechanism for obtaining preferences and the size of the exemption depend on the region of the RIP participant. According to the norms of Article 284.3 of the RF Tax Code, the following classification of participants may be distinguished:

1.Participants in RIPs in Siberia and the Far East;

2. Participants of other subjects;

3. RIP participants not required to be included in the register of RIP participants by decision of the authorized body of the subject of the Russian Federation.

Depending on the location of the investor, the tax rate to the budget of the subject of the Russian Federation, the requirement to include the participant in a special register of RIP participants, the need to comply with the condition of the total amount of capital investments in the project and the terms of its financing are established.

Participants in the first category have the greatest preferences, since there is no restriction on the size of the exemption depending on the total amount of capital investment in the project. 

For RIP participants of the second category the tax rate can be lowered to 10% and the amount of the profit tax exemption is limited depending on the amount of capital investment in the project. According to the Tax Code, the amount of capital investment in the project may not be less than 50 million rubles over 3 years or 500 million rubles over 5 years prior to the application of the exemption.

For RIP participants of the third category, the tax rate can be set at 0 to 10% for the first five tax periods and cannot be less than 10% for the next five years. Among other things, this category is subject to a limit on the amount of capital investment in the project. This restriction is as follows: if the total amount of "savings" on tax when applying the exemption, which is calculated on an accrual basis from the beginning of application of the exemption, exceeds the amount of capital investments in the project, the taxpayer loses the exemption. In this case, the amount of "savings" is subject to payment to the budget following the results of the tax period when the excess is established in the generally established order.

As of 01.01.2020 the legislation sets forth additional privileges for application of the exemption, in particular, it abolishes the rule concerning application of the exemption, if income from sale of goods produced as a result of implementation of RIP, made not less than 90%. Now all RIP participants can apply the exemption to all revenues from these activities, provided that they keep separate accounting of revenues (expenses) from activities within the framework of RIP and from other activities. It is worth noting that a special procedure for an on-site tax audit is applied to RIP participants. In particular, the rule on the audit of the three-year period preceding the year in which the decision on the appointment of an audit is made is excluded.

Where capital investments are to be made within a period not exceeding five years from the date on which an organization was included in the register of RIP participants, the tax authority may extend the inspection period to five years.  When conducting an on-site or in-house audit, the tax authority must request documents confirming the costs of capital investments in the framework of participation in RIP, in particular: tax accounting registers for separate accounting of income and expenses, construction contracts, acts and certificates of cost of work performed, acts of commissioning of reconstruction and modernization facilities, purchase and sale contracts for purchased equipment and machinery, etc. If the results of the tax audit revealed contradictions and inconsistencies in the execution of RIP, the organization loses the right to apply the benefits on the basis of the decision of the audit, which came into force.

Thus, despite the transparency of conditions for participation in RIP, the application of any tax benefit is subject to careful inspection and control by the tax authority, the taxpayer should be ready to document the reality and the actual amount of capital investment in facilities, excluding the risks of detection by the tax authority of distortions of information in order to obtain an unjustified tax benefit.