Russian IT to enjoy tax privilege scheme as of January

Russia’s IT sector is expected to receive a long-awaited boost next year, as the government has adopted a privileged tax regime for national tech companies. The authorities expect low taxes to attract new investment and create additional jobs.

The Russian government has finalised a tax privilege scheme for the IT industry to make locally developed software and other IT products more competitive in the global market, reports bneInteliNews. A company may benefit from the scheme if it has state accreditation in Russia, gets at least 90% of its revenue from software or electronics manufacture and employs at least seven people.

The tax privilege scheme is aimed to make Russia a better place to operate for companies from the IT sector. Earlier this year, Prime Minister Mikhail Mishustin stated that IT companies often “relocate, moving to jurisdictions of countries with a more favourable business climate”. The scheme is meant to position Russia among the countries with the lowest taxes for the IT industry. In the Netherlands, IT companies currently pay 7% of income tax, but it will increase to 9% as of 2021. In Cyprus, the tax amounts to 12,5%, but 80% of qualified revenue is exempt from it.

As of January, Russia’s income tax for IT companies will be reduced from 20% to 3%, while payments to the social security fund will be cut almost twofold to 7,6%. Companies included in the registry of Russian software manufacturers will continue to enjoy exemption from value-added tax (VAT). Besides, a grant system for software developers will be introduced. The scheme also envisages easing tax regime for private individuals. Currently, an individual has to spend at least 183 days per year in Russia to qualify as a Russian tax resident. From January, this requirement will be reduced to 90 days.

Skolkovo Innovation Centre in Moscow, Russia. Photo: Anatoly Lushnikov

Russia’s IT sector currently accounts for 1,8% of the country’s GDP, and, according to forecasts, is expected to stay at the same level at least until the end of 2023. By introducing the scheme, Russian authorities hope to attract entrepreneurs to build their business in Russia as well as significantly increase the number of employees in the local IT sector. The Ministry of Digital Development, Communications and Mass Media is now collecting proposals for additional measures from IT firms and discussing them with other government agencies.

According to the Ministry of Finance, the scheme will cost the Russian budget 140 billion rubles ($1,9 billion) in 2021 alone. At the same time, the government plans to reintroduce VAT for IT companies whose products are based on an ad-sponsored model, such as marketplaces. The change is expected to bring about 121,5 billion ($1,6 billion) in 2021-2023.

By Anna Litvina