Russian Tax Code - Special Taxation Frameworks

Special Taxation Frameworks

The set of specific federal and regional corporate taxes outlined above (i.e. regular CPT, VAT, UST and property tax), which by default is mandatory for all corporate taxpayers and registered individual entrepreneurs, is known as General taxation system. Three alternative tax systems replace the above taxes with a simplified procedure:

Imputed taxation applies to specific, typically small business, activities involving trading with general public in cash: small retail and food service outlets, hotels, repair shops, taxi companies, etc. Imputed tax, uses rates set by local authorities (per square meter of shop space, per vehicle etc.) All eligible businesses use imputed taxation. The law is also mandatory for eligible parts of larger corporations, even if they are individually insignificant. For example, a cafeteria of a large steel mill is usually considered a subject of imputed tax and the mill must account for it as a separate taxable unit (the core business remains on terms of general taxation system).

Simplified taxation system applies to small businesses with annual sales less than 60,000,000 rubles. Banks, insurers, foreign companies and certain other professions and businesses are not eligible. The average number of employees in the firm should not exceed 100 during the year and total assets should not exceed 100,000,000 roubles to be eligible. Unified tax is levied either on gross receipts at 6 percent, or on profit before income tax at 15 percent; the choice of either option, is made by the taxpayer. Simplified system prescribes a specific set of accounting rules, thus gross receipts and gross margins of eligible businesses are, usually, higher than they would be under general accounting and taxation systems.

An eligible business can elect either simplified or general taxation system at will with certain timing restrictions, which are usually once a year in December. If the business loses eligibility at any time during the year, it continues operating under simplified system until the end of the year, and then it must recalculate its tax obligations under general taxation system from the moment it became ineligible. The system does not allow taxpayers to pass prepaid input VAT to their customers; such customers who are VAT payers are unable to refund any VAT paid downstream. As a result, businesses engaged in B2B transactions prefer general taxation.

Taxation system for agriculture (including animal farms and fisheries) uses a flat unified tax levied at 6 percent on gross margins, with its own unique set of accounting rules. There are no limitations on size of the business as long as at least 70 percent of its income is generated by sales of its farm produce.

VAT exemptions outlined in special frameworks apply only to VAT on domestic sales. VAT on imports is payable by all importers regardless of their tax framework. Likewise, the insurance premiums payable to Pension Fund of Russia are not considered part of UST and are payable by all employers.

Finally, a Product-sharing agreement framework applies to a very limited list of joint state-private enterprises, typically in oil extraction.