Recent significant changes in tax legislation
On 30 April 2020, Russia notified the Organisation for Economic Co-operation and Development (OECD) that it had completed its national procedures for implementing the Multilateral Convention (MLI) for 27 double tax treaties (DTTs), and Russia notified about completing national procedures with 7 more jurisdictions on 26 November 2020. Consequently, the MLI may become effective as early as 1 January 2021 for 27 DTTs applying to all taxes and for 7 DTTs applying only to withholding tax (WHT). The MLI will be applied to these 7 DTTs for all taxes from 1 January 2022. Treaty benefits will only apply if the MLI criteria (including passing the principal purpose test) are satisfied.
As of 1 April 2020 and going forward, reduced social contributions rates (around 15%) for small and medium-sized enterprises (SMEs) have been introduced.
As of 1 January 2021, significant tax benefits (reduced corporate income tax [CIT] rate to 3% and reduced social contributions to 7.6%) have been provided to Russian IT and technology companies. To apply the benefits, such companies need to obtain special accreditation, employ at least seven people, and generate at least 90% of their total revenues from the core activity. At the same time, the value-added tax (VAT) exemption applicable to software and databases transfers, including licensing, is significantly narrowed. As a result, foreign software vendors on the Russian market will likely lose the right to apply this exemption, and such supplies will be subject to the Russian VAT at the rate of 20%.
Russia has ratified amendments to DTTs with Cyprus and Luxembourg, and amendments to the DTT with Malta are expected to be ratified. The main points are increasing tax rates for dividends and interest. The maximum rate will be 15% both for dividends and interest, but there are some exemptions (5% and 0% rates will be applied in some cases). The tax rate for royalties will remain at 0% (5% with Malta). The amendments to the DTT with Cyprus apply from 1 January 2021. The amendments to the DTTs with Malta and Luxembourg will likely apply from 2022 (ratification process has not been completed). The ratification process of the protocol with Malta is also not completed. Application of new rates under the DTT with Malta in 2021 has to be clarified by the Ministry of Finance. In addition, Russia has announced about denunciation of the DTT with the Netherlands (but, in 2021, the DTT would still remain in force). Other DTTs with transit jurisdictions historically used for investments into Russia may also be revised.
From 2021, income from sale of shares and participatory interest both in Russian and foreign entities may be exempt from taxation after a five-year ownership term, provided certain conditions are met.