Due to the last amendments to the Tax Code of the Russian Federation (RF TC) the effective procedure for foreign exchange differences accounting is undergoing fundamental changes. At present, such changes cover only foreign exchange gains arising out of all transactions denominated in foreign currency (which are active at the moment).
The amendment stipulates that this year foreign exchange gains shall be attributed to the taxable income at a time, within the obligation discharge period, and not monthly (as was previously the case) (Subclause 7.1, Clause 4, Art. 271 of RF TC). Actually, Russian entities are enabled to defer payment of tax on foreign exchange gains until closure of the obligations.
At the same time, the new procedure represents an obligation rather than a right of Russian companies not allowing them to recognize foreign exchange differences for the purposes of income tax in the previous manner.
Next year, one more change will be added concerning the accounting procedure for foreign exchange losses. At present, they are to be recognized as expenses every month, and next year they will also be subject to deferment until the obligation is discharged.
A borrower need not include obligations forgiven this year under loan agreements entered into with a foreign entity or individual into its income subject to income tax (Subclause 21.5, Clause 1, Art. 251 of RF TC). The same regulation applies to the obligations terminated in 2022 on claims assigned to a foreign person before 1 March 2022.
Please note that the exemption covers both debt principal and interest accrued and not yet paid.
Unfortunately, this exemption does not apply to debts towards Russian lenders.
The VAT refund application procedure stipulated by Art. 176.1 of RF TC may now be applied by any entity not undergoing reorganization, liquidation or bankruptcy. However, the refund of VAT in an accelerated procedure not supported by a bank guarantee or surety is possible only within the stated limit. The limit is composed of the aggregate amount of taxes and insurance premiums (without regard to taxes paid in connection with carrying the goods across the border of the Russian Federation and in capacity of a withholding agent) paid by a taxpayer for a calendar year preceding the year when the VAT refund application is filed.
If the limit is exceeded, to enable accelerated refund with regard to such excess a bank guarantee or surety will be required.
To activate the accelerated VAT refund, the application shall be filed. The Federal Tax Service has developed a recommended form of the application and provided explanations on its completion (Letter of FTS of Russia dated 01 April 2022 No. ЕА-4-15/3971@).
From 9 March 2022 to 31 December 2023 the penalty rate for entities shall be equal to 1/300 of the refinancing rate of the Central Bank of the Russian Federation effective in this period, irrespective of the late payment period. To recap, earlier the penalty rate was 1/150 of the refinancing rate starting from the 31st day of delay.
Firstly, the income threshold for recognition of the transactions as controlled ones is increased twofold, from RUB 60 mln to RUB 120 mln (Clause 3, Art. 105.14 of RF TC).
Secondly, transactions with income and expenses recognized within the period from 1 January 2022 to 31 December 2024 (irrespective of the contract date) may not be recognized as controlled ones with regard to the criterion of at least one party applying investment deduction to income tax.
Thirdly, through the end of 2023, a 40% fine is cancelled (under Clause 1, Art. 129.3 of RF TC) for non-payment of tax on controlled transactions with the terms incommensurate with the market terms. This includes transactions with income and/or expenses arising in 2022–2023. The date of the contract conclusion is irrelevant.
Fourthly, enlarged ranges of limit values of interest rates on controlled debts effective in 2020 and 2021 are extended through the end of 2023 (Art. 269 of RF TC).
Lastly, in the fifth place, liability is cancelled for non-provision of documents supporting the amount of income or loss of a controlled foreign company (CFC) for financial years which end date falls on 2020 and 2021 (Art. 126 of RF TC).
Firstly, an exemption of income in the form of financial benefit received by individuals in 2021–2023 was introduced (Clause 90, Art. 217 of RF TC).
To recap, the financial benefit may arise only in the following cases:
Consequently, new PIT exemption may only be applied in the cases described above. For this reason when an individual receives another type of benefit, e.g. economic benefit in the form of savings on debt payment expenses, such benefit is subject to taxation.
Secondly, income is PIT exempt if it is received by individuals in 2022 in the form of property (except for money) or property rights provided by a foreign company where an individual was a controlling person and/or founder as of 31 December 2021 (Clause 60.2, Art. 217 of RF TC). However, this exemption may be used subject to simultaneous fulfilment of the following conditions:
Thirdly, PIT exemption was introduced with regard to interest on deposits (balances on accounts) with the Russian banks received in 2021 and 2022 (Clause 91, Art. 217 of RF TC).
Certain peculiar features shall be taken into account when calculating according to Clause 2, Art. 269 of RF TC the limit value of interest attributable to expenses within the period from 1 January 2022 to 31 December 2023 with regard to debt obligations arisen before 1 March 2022.
Firstly, currency debt is recalculated in roubles at the exchange rate not exceeding the rate effective as of 1 February 2022.
Secondly, when calculating the equity, foreign exchange differences arisen from 1 February 2022 need not be taken into account. This means the differences which arose due to revaluation of claims (obligations) denominated in foreign currency.
A possibility is introduced to switch to payment of monthly advances on income tax based on actual profit. This may be done starting from the reporting period of three months, four months, etc. till the end of 2022 (Clause 2.2, Art. 286 of RF TC). In doing so, the advances accrued earlier will be considered.
A change of the calculation procedure for tax advance payments shall be reflected in the entity’s accounting policy. To exercise this right, one shall notify a tax office at the place of location of the entity (at the place of registration as a major taxpayer) not later than on the 20th day of the month which the end date of the reporting period falls on, with regard to the reporting period when the taxpayer starts to pay monthly advances based on actual profit.
In 2022–2024, software developers will be able to pay income tax to the federal and regional budgets at the zero rate (Clause 1.15, Art. 284 of RF TC).
The zero rate may be applied starting from 1 July 2022 to the following services (Subclauses 18, 19, Clause 1. Art. 164 of RF TC):
Due to difficulties associated with transfer of funds from foreign bank accounts in the context of imposed sanctions, the Federal Tax Service of Russia suggests Russian entities and individual entrepreneurs being buyers of e-services which are supplied in the Russian Federation apply an old approach, i.e. to act as a withholding agent (Letter of FTS of Russia dated 30 March 2022 No. СД-4-3/3807@). In doing so, one shall notify its foreign providers of electronic services accordingly.
The authorities permit to act as a withholding agent also with regard to other VATable goods and services for which the Russian Federation is considered the place of supply.
The terms of payment of insurance premiums are postponed for 12 months:
This involves luxury cars costing up to RUB 10 mln which were earlier subject to multiplying factors of 1.1 and 2 (Art. 362 of RF TC). Thus, a transport tax with multiplying factor 3 applies only to vehicles costing more than RUB 10 mln.
Participants of foreign economic activities are now obliged to sell 80% of foreign currency credited to their accounts under foreign trade contracts (Decree of the President dated 28 February 2022 No. 79). There are no exemptions for the contracts for which the repatriation requirement was cancelled from 1 July 2021.
At the same time, the terms for compulsory sale of currency were changed. At present and until 1 September 2022, exporters are allowed to sell foreign currency credited to their currency accounts with the authorized banks within 60 working days from the date of its crediting (Information of the Central Bank of Russia dated 21 April 2022).
If an authorized bank that has registered an export/import contract or loan agreement became subject to anti-Russian sanctions limiting operations on residents’ accounts with this bank, a resident which is a party to the contract (agreement) may carry out operations under such contract (agreement) using accounts with another bank without such contract (agreement) being registered by such bank.
The respective operating procedure is set forth in Letter of the Bank of Russia dated 28 February 2022 No. 019-12-4/1210.
An authorization-based procedure for certain transactions (operations) between residents and non-residents has been introduced (Decrees of the President of Russia dated 28 February 2022 No. 79, dated 01 March 2022 No. 81).
If a non-resident is from an unfriendly country, the following activities are prohibited without a special permit:
As a general rule, all residents (irrespective of the counterparty’s residency country) shall obtain the permit of the Government Commission on Monitoring Foreign Investment in the Russian Federation allowing to issue loans in foreign currency to non-residents. Crediting foreign currency to one’s foreign accounts (deposits) without a permit is also prohibited.
Prohibition with regard to transfer of foreign currency does not apply to the accounts of foreign representative offices and/or branches of a resident legal entity and to the account of its employees. In doing so, the amount of financing shall not exceed the amount of the previous year (Extract approved by the Ministry of Finance of Russia on 12 March 2022 No. 05-06-10/ВН-11081).
This procedure applies to performance of obligations in the amount exceeding RUB 10 mln per month (or equivalent of this amount in the foreign currency at the official rate of the Bank of Russia as of the 1st day of the month) (Decree of the President of the Russian Federation dated 05 March 2022 No. 95).
Such obligations shall be performed via accounts of C type opened in the name of a foreign lender. A borrower shall transfer funds to the account and afterwards the lender may apply to the credit institution for the use of funds according to the procedure determined by the Bank of Russia. The conditions have been established under which the obligations are considered duly performed.
The same procedure applies in case of taking a decision on distribution of residents’ profit and payment thereof to foreign lenders (Decree of the President of the Russian Federation dated 04 May 2022 No. 254).
Until the end of 2022, the number of non-tax inspections is reduced to the fullest extent possible (Regulation of the Russian Federation Government dated 10 March 2022 No. 336). Scheduled inspections may be performed in certain cases by supervisory authorities in charge of industrial safety, sanitary and epidemiological control, veterinary checks and fire supervision.
A number of grounds for unscheduled inspections has been substantially reduced.
The Government has also determined the way of proceeding with regard to the inspections started before the moratorium declaration.
The term for fulfilment of binding orders issued before the moratorium declaration was extended for 90 days. The term may be once more extended if the respective application is forwarded not later than the last but one day of the term.
Since 1 April, the moratorium on initiation of bankruptcy cases on the basis of lenders’ applications has been introduced (Regulation of the Russian Federation Government dated 28 March 2022 No. 497). It lasts 6 months and refers to all entities, except for developers under shared construction participation agreements included into the register of troubled assets.
The reduction of net asset value of a limited liability company or a joint-stock company upon the end of 2022 will not obligate the owners to reduce the authorized capital, liquidate the company or include this information in the financial statements (Art. 17 of Law No. 46-FZ dated 08 March 2022).
Earlier, if net assets became lower than the authorized capital for the second year in a row, a joint-stock company was obliged to disclose this information in its financial statement (Clause 4, Art. 35 of Law No. 208-FZ dated 26 December 1995). There is no similar requirement for limited liability companies.
If upon the results of the subsequent year net asset value of the limited liability company or joint-stock company was still less than the authorized capital, the company had to either reduce the authorized capital, or liquidate itself (Clause 6, Art. 35 of Law No. 208-FZ dated 26 December 1995, Clause 4, Art. 30 of Law No. 14-FZ dated 08 February 1998).
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