Russia Raises Tax Rates For High Earners, Reduces Taxes For I.T. Investors

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Asian Investors To Look At Russian Market I.T. Opportunities

Russia has made joint steps to reform tax codes for specific individuals and businesses, commencing from January 1 2021.

President Vladimir Putin announced in a speech to the nation yesterday to scrap Russia’s flat 13% income tax system from next year. Russians earning more than 5 million rubles (US$73,000) a year will pay 15% tax on all income above that level. The move will generate 60 billion rubles ($875 million) in extra revenue for the government, Putin said.

Russian IT companies will benefit from a new ultra-low tax regime, Putin announced, with a so-called “tax maneuver” to cut social security obligations on technology firms from 14% to 7.6%, and slash profits tax from 20% to 3%. Shares in Yandex and Mail.Ru — Russia’s leading domestic technology companies — climbed higher on the news. Nasdaq-listed Yandex was up more than 3%, while rival Mail.Ru, which is listed in London, added another 2% in afternoon trading.

Putin also announced Russia will extend a number of other benefits for households and businesses which have been introduced since the outbreak of the coronavirus pandemic.

Families will receive a 10,000 ruble (US$145) payment in July for every child under the age of 16, and another 100 billion rubles (US$1.5 billion) will be distributed in government-backed cheap business loans for companies to pay employees — loans which can be written off if firms don’t cut employee numbers. Critics have said the mechanisms to apply for such loans are lengthy and unclear with many banks apparently unwilling to disperse the funding.

Foreign VC firms have often been looking to Russia as a good bet for IT investments, and the moves to reduce profits taxes in this area will provide a spur to investors from China, India and other Asian investors in this sector.

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