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Amendments to the Tax Code of the Russian Federation: Tax Residence and Rates for IT companies

We review below the main amendments introduced by Federal Law 265-FZ dated July 31, 2020 to the Russian Tax Code, in particular, to tax residency in Russia in 2020 as well as profit tax and social insurance contribution rates for IT companies.

Tax residency

Under the new procedure, individuals who have in fact stayed in the Russian Federation in 2020 from 90 to 182 days are recognized as Russian tax residents for the tax period of 2020. Such individuals will be recognized as tax residents based on applications filed with tax authorities at the applicant’s place of residence or place of stay by April 30, 2021 at the latest. Applications may be drawn up in any form and must include the applicant’s full name and taxpayer identification number (INN). If individuals stay in the Russian Federation for more than 182 calendar days, as previously, they will be recognized as tax residents automatically.

Tax rates for IT companies

From January 1, 2021 onwards, the profit tax rate for IT companies will be reduced to 3%, while social insurance contribution rates will go down to 7.6%. IT companies meeting the following conditions will be able to apply these reduced rates:

  1. IT companies accredited by the Russian Ministry of Communications and Mass Media in accordance with the Regulations approved by the Russian government. This accreditation is mandatory for all software developers applying for most state support measures;
  2. IT companies with a staff headcount of at least 7 in the reporting tax period;
  3. At least 90% of the company’s revenues should be derived from the sale of IT products and services. The law defines IT products and services as follows: “transfer of rights to developed (adapted, modified) computer programs and databases, their updates, as well as the provision of services (performance of work) for software installation, testing and maintenance.”

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