At present, there are several types of incentives in Russia:
- Regional incentives granted by regional or local authorities with respect to taxes paid to their budgets.
- Investment tax credit.
- Special tax regimes in special economic zones (SEZs).
- Regional investment projects and special investment contracts (SPIC).
- Advanced Development Zones (ADZs).
- The free port of Vladivostok.
- Incentives related to certain activities (e.g. R&D and information technology [IT] related activities).
- Incentives related to specific projects (e.g. Skolkovo, 2018 FIFA World Cup).
- Investments protection and promotion agreements (IPPAs).
The incentives are briefly described below.
Also note that Russian tax law provides for special tax regimes to support small and medium-sized enterprises (SMEs). These include unified and simplified tax regimes, as well as a unified agricultural tax.
Many industrial regions of Russia offer numerous tax and non-tax incentives and benefits to investors.
Regional incentives in the form of reduced tax rates (primarily the given region’s portion of CIT, property tax, and transport tax) are granted to certain classes of taxpayers, typically large investors or entities operating in specific industries. The reduced regional rates introduced before 1 January 2018 will apply until the date of their expiry but not later than 1 January 2023. Local land tax incentives are frequently available for such investors as well. The size of an entry investment is usually in the range of around RUB 50 million to RUB 150 million. Some regions require a lesser amount, and some do not require any minimal amount at all (it is subject to negotiation).
There are also several notable non-tax incentives, including the allocation of budget subsidies, partial compensation of capital expenditures, provision of guarantees to banks, simplified access to infrastructure facilities, lower rental charges, and administrative and legal support, among others.
Investment tax credit
Starting from 2018, a new tax benefit stimulating the renewal of fixed assets applies. Taxpayers will have a choice to use depreciation or to deduct the cost of investment (cost of fixed assets acquired) directly from the CIT. The choice is available in constituent regions were an appropriate law is adopted. Up to 90% of expenses can be deducted from the regional CIT and up to 10% from the federal CIT. Considering this, the amount of regional CIT must be at least 5% of the tax base before the applying the deduction. The amount of federal CIT may be reduced to zero. The Russian regions may set a cap on the amount of the deduction. If the amount of investments exceeds the set cap, it may be carried forward for an unlimited number of years. The deduction is applicable to larger number of assets (for depreciation groups 3 to10, except for buildings and transmission facilities). Since 1 January 2021, regions may also establish investment tax credit for R&D activities.
It is expected that around half of the regions may introduce the law allowing application of the investment tax credit as of 1 January 2020.
Special economic zones (SEZs)
The following types of SEZs have been established in Russia:
- Industrial zones.
- Technical research and implementation zones for scientific projects.
- Tourism and recreation zones for the development and effective use of Russia’s wealth of tourist attractions.
- Port zones.
The minimum amount of investment to be eligible for such incentives are:
- RUB 120 million. The investment of RUB 40 million should be made within the first three years from the date of obtaining resident status for residents of industrial zones.
- RUB 400 million within three years from the date of obtaining resident status in a port zone in cases of port facilities construction (RUB 120 million in case of reconstruction).
Moreover, most regions provide their own incentives with respect to CIT and transport tax.
In addition, reduced social contribution rates are available for residents of industrial zones if they are engaged in R&D.
Residents of SEZs may also enjoy free customs zones.
Advanced Development Zones (ADZs)
ADZs have been initially established to develop the Russian Far East. Currently, ADZs are expanded to some other Russian regions, such as ADZs in Republic Komi, Smolensk region, etc. ADZs offer special terms for companies operating in various industries (e.g. agriculture, textiles, chemicals, pharmaceuticals, furniture, telecommunications, education, science and technology, etc.), including CIT and property tax incentives, free customs zones, project financing, and simplified rules for hiring foreign employees. In particular, residents of ADZs are provided with the following tax incentives:
- Zero rate on the federal portion of CIT for a five-year period.
- Reduced regional portion of CIT (no more than 5% during the first five years of profitable sales and at least 10% during the subsequent five years). Specific rates are established by regional law.
Reduced social contributions (7.6% instead of the standard 30%) during a ten-year period.
Free port Vladivostok
Residents of the port enjoy the following tax incentives:
- Zero rate on the federal portion of CIT for a five-year period.
- Reduced regional portion of CIT (not more than 5% during the first five years of profitable sales and at least 10% during the subsequent five years). Specific rates are established by regional law.
- Reduced social contributions (7.6% instead of the standard 30%) during a ten-year period.
The following 'activities' incentives are available to taxpayers in Russia:
- Certain R&D services are exempt from VAT.
- Certain R&D service-related expenses, as listed by the government, are deductible using a coefficient of 1.5.
Starting from 1 January 2021, a reduced CIT rate of 3% will be available for qualified IT and technology companies. Reduced social contributions will apply as well. The following criteria should be met by companies in order to apply these incentives:
- Companies should obtain a state accreditation certificate as an entity engaged in the IT/technology business.
- Their revenues from IT/specific technology activities as at the end of the reporting (tax) period amounts to at least 90% of the total revenues for the reporting (tax) period.
- The average number of employees is at least seven people.
Special project incentives
Participants in the Skolkovo Innovation Centre enjoy a number of benefits, the main ones of which are: exemption from CIT and property tax, as well as from VAT liability, and reduced rates for mandatory social fund contributions.
The same approach is applicable to FIFA and its contractors.
Regional investment projects and special investment contracts
There are two types of contracts that may be concluded directly with the Russian Federation: a special investment contract and a regional investment project. Investors who have concluded such contracts may enjoy a number of tax and non-tax incentives.
The SPIC legislation was amended in 2019. According to the SPIC 2.0, the following tax incentives are available:
- Non-application to the investor of the amendments to the Tax Code which worsen its position.
- Reduced income tax rate provided that sales from SPIC products account for at least 90% of the taxable income
- The application of tax benefits is now not limited to 2025. However, SPIC 2.0 provides for a new restriction: tax benefits shall be applied as long as the total amount of incentive measures (subsidies issued and shortfalls in taxes received by the budget) does not amount to 50% of capital investments specified in the SPIC.
Investments protection and promotion agreements (IPPAs)
An IPPA is an agreement between a business and the state based on which the business undertakes to invest in a Russia-based project, while the state commits to ensure a stable tax regime for implementing the project. In certain cases, the state may also provide other types of aid and support.
An IPPA will be available only for projects with capital investments amounting to RUB 200 million and more. That said, the amount of 'stabilisation' commitments that the state can provide under an IPPA will directly depend on the capital invested into the project (e.g. certain measures will become available starting with RUB 300 billion of investments).
Foreign tax credit
Credit relief is available for foreign taxes paid up to the amount of the Russian tax liability that would have been due on the same amount under Russian rules.