Tax maneuver in the IT industry: who can take advantage of incentives?
On 1 January 2021, new amendments to the Russian Tax Code will come into force. They introduce changes to the taxation of IT companies in Russia aimed at stimulating and supporting domestic software manufacturers. The tax maneuver includes three categories of changes.
Reduction of the profit tax rate from 20% to 3% for:
- Russian companies that develop and sell software and provide software modification, adaptation, installation, testing and maintenance services;
- companies engaged in the design and development of electronic component-based products and electronic products.
The eligibility criteria for these incentives are:
- the company holds state accreditation or is included in a special register of the Russian Ministry of Industry and Trade;
- at least 90% of the company’s revenue comes from IT, in the form of revenues from the sale or transfer of copies of software (databases) developed by the company, the sale or transfer of exclusive rights (transfer of rights to use such software and databases, updates to them, including via the Internet), as well as revenues from services for the development, adaptation and modification of software, installation, testing and maintenance of software and databases;
- the company had at least seven employees on the average over the year.
In addition, the previously available option of not using the general procedure for depreciation of computer equipment will be abolished.
Reduction of insurance fees from 14% to 7.6% under the same conditions as those mentioned above.
The procedure for charging value added tax (VAT) on software revenues.
From 2021, the sale of exclusive rights to computer programs and databases in Russia, the rights to use such programs and databases (including updates and additional functionality) are VAT exempt, provided that they are included in the Unified Register of Russian programs for computers and databases of the Ministry of Communications.
The incentives start to apply when the software (database) is included in the Ministry’s register.
Income from IT activities does not include income from granting rights if such rights consist in obtaining the ability to distribute advertising on the Internet, and/or gain access to it, placing offers to buy or sell goods (works, services, property rights) on the Internet, searching for information about potential buyers (sellers) and/or making deals.
Thus, the VAT exemption will not be available for trading platforms, or for virtually any software that hosts advertising banners or other promotion of their own or others’ goods (services).
The new changes are ambiguous. Despite the obvious advantages, not many companies earn 90% of their revenue exclusively from IT, as required.
 Federal Law Nо. 265-FZ of 31 July 2020 (revised on 23 November 2020) “On Amendments to Part Two of the Tax Code of the Russian Federation”.
 Item 3 of Decree of the Government of the Russian Federation No. 1236 of 16 November 2015 (revised on 30 March 2019) “On establishing a ban on the admission of software originating from foreign countries, for the purposes of procurement for state and municipal needs”.