Understanding Russian Regional Tax Incentives
Foreign investors in Russia can work with regional authorities in Russia to actively reduce their tax bills. Although there are regional differences, such authorities in Russia have the right to reduce their regional allocation of profit tax of 18 percent to 13.5 percent (a minimum overall tax rate of 15.5 percent, including the 2 percent federal portion), and provide a reduced rate or exemption from property tax chargeable at the maximum rate of 2.2 percent of the cadastral or residual value of fixed assets (depending on regional legislation).
Other incentives and grants are also available in a variety of regions (e.g. land tax incentives and subsidies for interest on loans). Such exemptions are normally conditional on specific investment criteria in the region being met.
Movable property recorded in statutory books as fixed assets starting from January 1, 2013 is not subject to property tax (except for the movable property that has been acquired as a result of the reorganization or the liquidation of legal entities, as well as a result of the transfer thereof between affiliated parties). Therefore, regional incentives might bring benefits in the event of significant investments being made in immovable property or sufficient taxable profit during the period that the incentives are applied (usually the first three to eight years).
St. Petersburg, surrounding area of Leningrad Oblast, and Moscow regions, among many others, offer incentives of this kind; however, the city of Moscow has not offered incentives that are as extensive as in other areas.
In certain regions of Far Eastern Russia and Siberia, profit tax rates (both federal and regional components) for the producers of goods investing are reduced. In particular, for the first five years of income-generating activity, the maximum profit tax rate applicable is 10 percent (and may be further reduced by certain regions to 0 percent), and for the following five years the maximum profit tax rate is 18 percent (and may be further reduced by certain regions to 10 percent). Each region can adopt changes to regional laws, decrease the regional part of the rate, and introduce additional qualifying criteria.
In 2015, incentives for the Territories of Advanced Social and Economic Growth (TASEG) became effective. TASEG is a concept aimed at developing certain regions of the Russian Federation, such as the Far East, among others. The following tax preferences will be applied to TASEG:
- Reduced profit tax rates (for the first five years of income-generating activity, the maximum profit tax rate applicable should be the 5 percent regional portion and the 0 percent federal portion; and for the following five years, the maximum profit tax rate should be no less than 10 percent and 2 percent, respectively);
- A declarative process of VAT recovery for TASEG residents under the guarantee of the TASEG management company, without a bank guarantee;
- Application of the reduced mineral resources extraction tax rates. If resident status of TASEG is received within three years from its creation, the reduced rates of social security contributions of 7.6 percent will be applied for a period of 10 years.
Applying for tax exemptions and incentives in Russia should be part of the pre-investment strategy, as successful applications impact upon the overall business plan. Seeking professional advise to find out what incentives and tax breaks can positively impact your investment in Russia.
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