Two pieces of news for businesses right now: one bad and one good

The bad news is that starting next year, the corporate income tax rate will increase to 25%.

The good news is that many companies currently paying corporate income tax will be able to avoid the increased tax burden due to this higher rate by switching to the simplified tax system (STS), which offers a lower tax rate.

This is because lawmakers have significantly (more than doubled) increased the income threshold for transitioning to the STS. Previously, the income limit for nine months of the year was set at 112.5 million RUB (with indexing, 149.5 million RUB), but now the limit has been raised to 337.5 million RUB. This provides advantages to many companies that fall within this threshold.

Moreover, even the requirement for STS companies to become VAT payers from 2025 won’t have much impact, as these companies were already paying VAT under the standard taxation system (STS). In fact, they will now have an alternative in terms of VAT rates: companies that switch to the STS can choose a reduced VAT rate of 5% (for 2024 income between 60 and 250 million RUB) or 7% (for 2024 income between 250 and 450 million RUB) instead of the standard 20%. However, it is worth noting that when selecting a reduced VAT rate, companies will not be able to apply VAT deductions on purchases and imports. Additionally, once this rate is chosen, it must be applied consistently for three years (12 months).

It is also important to remember that there is a list of taxpayer categories that are not allowed to use the STS, regardless of income or other criteria (such as residual value of fixed assets or number of employees). These include companies where the share of other organizations (including foreign ones) exceeds 25% (subsection 14, clause 3, Article 346.12 of the Tax Code of the Russian Federation). Therefore, if your founder is, for example, a foreign organization with a 100% ownership share, unfortunately, you will not be able to apply the STS.