Important changes in 2018

By Elena Rybnikova, Head of Internal Audit, Expertise and Methodology Department

Russian legislative authorities introduced many changes and offered many clarifications of their position in 2017. So many changes were introduced during the year that accountants and company heads have been compelled to keep accounting and conduct business quite differently. Elena Rybnikova, Head of Quality Control and Methodology Department at Intercomp, has reviewed and selected the changes that will be relevant in 2018.

Elena Rybnikova
Head of Internal Audit, Expertise and Methodology Department

These relevant changes, for which it is necessary to get ready already now, will enter into force from January 01, 2018 onwards. In addition to the traditional annual changes such as, for example, new social insurance contribution rates, minimum wage review, salary indexation, fundamentally new and significant rules will also be introduced in 2018. The 25 most important changes that will become effective in 2018 have been listed below for your information.

No. 1. Address of counterparty

To deduct VAT, it will be necessary to indicate in VAT invoices the address of counterparties as it is recorded in the State Register of Legal Entities. The Federal Tax Service previously used to consider that an error in the address of a business partner was not a significant issue and did not prevent the identification of the taxpayer. Now, like the Taxpayer Identification Number (INN), the address has become an important detail that must be specified in VAT invoices as registered in the Federal Tax Service database of legal entities.

No. 2. VAT on finance lease

The list of transactions not subject to VAT has been expanded. The leasing of medical products used to be subject to VAT in the past, but now finance lease contracts with a purchase option on medical products (prosthetics and orthopedics) are no longer subject to VAT.

No. 3. R&D costs

In addition to labor costs, the social insurance contributions accrued on such costs will also be classified as research and development expenses (Article 262(2(2)) Russian Tax Code). In addition, expenses incurred to acquire exclusive rights to inventions, utility models or industrial designs under contracts for disposal or use of rights to use such intellectual properties under a license agreement will be recognized as R&D expenses if these rights are used solely for R&D. Moreover, companies with R&D expenses will be able multiply such costs by 1.5 and include them not only in other expenses, but also in the initial value of depreciated intangible assets (Article 262(7) Russian Tax Code).

No. 4. Health resort trip vouchers

Companies may provide their employees and family members with health resort trip vouchers worth up to RUB 50,000 per year, and such vouchers will be included in deductible expenses for profit tax purposes provided that they are spent in Russia. The bill proposing this benefit has already passed the third reading in the State Duma so it is highly likely that it will enter into force in 2018.

No. 5. Training costs

The costs incurred for training employees will be treated as deductible expenses for profit tax purposes. These costs include the payments made for renting premises for training, training staff and other similar expenses.

No. 6. Boarding pass

In addition to itinerary receipts for business trip flights, employees will also be required to provide boarding passes bearing a stamp of the relevant airport as supporting document to confirm business trip expenses.

Boarding passes may be printed by employees if received in electronic form. Although the Ministry of Transport has issued a decree abolishing paper boarding passes, the Ministry of Finance insists on submission of stamped boarding passes to confirm flights.

If no stamped boarding pass is available, then it will be necessary to obtain a letter from the airline company confirming the flight. Business trip expenses may be deducted for profit tax purposes only after receipt of such confirmation letter.

No. 7. Inventory of intangible assets

Revenues not taken into account for profit tax purposes are topped up with income in the form of proprietary rights in intellectual property (intangible assets) identified during inventory.

No. 8. Budget allocation

The percentage of allocation of profit tax between federal and regional budgets will change so that the federal tax will amount to 3% and regional tax to 17%. The minimum profit tax rate will be set at 12.5%. This redistribution of funds between federal and regional budgets will allow the constituent entities of the Russian Federation to tackle their local problems more quickly.

No. 9. Profit tax reduction

The profit tax rate for travel companies operating in the Far East will be reduced to zero-percent. These companies used to pay profit tax in full. The new zero-percent rate will apply from 2018 to 2022.

No. 10. Simplified taxation system

Annual revenues should not exceed RUB 150,000,000 to be eligible to apply the simplified taxation system in 2018, and income for the first 9 months of 2017 should not exceed RUB 112,500,000 to apply for application of the simplified taxation system in 2018.

No. 11. Additional revenues

The tax on additional revenues will be introduced as a pilot project for replacement of the tax on extraction of minerals. Oil production companies will take part in this project.

No. 12. Resort levy

An additional fee is charged to individuals in resort regions of the Russian Federation. This tax was established by the RSFSR law dated December 12, 1991 and imposed earlier until 2004. This levy was introduced in 4 regions: Crimea, Altai, Krasnodar, and Stavropol territories.

No. 13. Bond interest rates

Bond interest rates are not subject to personal income tax in full, but by analogy with bank deposits, they are taxed as per the following formula: (interest income — interest nominal value) × refinancing rate + 5.

No. 14. Transaction invalidity

Taxpayers are not permitted to reduce the tax base and/or the amount of tax payable as a result of misstatement of business operations, taxable assets recorded in tax accounting and/or accounting or taxpayer’s reporting. Inspectors will no longer refer to the provisions of the Russian Civil Code as this rule has been introduced in the Russian Tax Code.

No. 15. Tax benefit

A new concept of “tax benefit” has been introduced in a new article of the Russian Tax Code (Article 54.1). Tax optimization should be carried out very carefully, without overstepping the scope of deliberate tax benefit.

No. 16. Signing of primary documents

The following cases are no longer considered as grounds for companies to reduce their tax base: (1) when primary accounting documents have been signed by an unidentified or unauthorized person, (2) when a counterparty violates tax laws, (3) when companies can achieve the same performance when completing other transactions (operations) not prohibited by law. This change, on the one hand, helps businesses avoiding a number of disputes (upon VAT refund), but if the exercise of this right is abused, this could give rise, on the other hand, to a risk that invalid and illegal transactions could be concluded “behind company directors’ back”.

No. 17. Transaction certificate

The threshold for application of currency control procedures, expressed in ruble equivalent at the contract date or date of signature of additional agreement, has been raised. The limit for import contracts, including “incoming” services, work, loans, etc. will be RUB 3,000,000 (USD 50,000) and RUB 6,000,000 (USD 100,000) for export contracts, including “outgoing” services, work, loans, etc. What is new is that banks will not issue transaction certificates, but they will register contracts. Authorized banks will themselves set out how contracts should be registered/de-registered.

No. 18. Currency control documentation

Certain actions must be performed at the same time upon transfer of currency. So, an order for money transfer and documents related to this transaction are submitted to the bank, no currency transaction certificate is issued. In addition, when payments are ordered, contract numbers rather than transaction certificate numbers will be specified in payment orders. Also, when residents transfer to a transit account or withdraw from a settlement account an amount equal or greater than RUB 200,000, they must provide the bank with a code of transaction type. This information replaces currency transaction certificates and is indicated in “Payment Purpose”: {VO (code of transaction type)}, for example, {VO11100}. Non-residents are also required to submit to the bank a document specifying the code of transaction type when they withdraw currency from their accounts. The procedure and deadlines for submitting documentation to banks for registration of currency payment contracts and submitting supporting documents have remained unchanged.

No. 19. Desk audits

The time period for desk audits has been reduced from three months down to one month.

No. 20. Penalties

Criminal liability has been introduced for large non-payment of taxes, for providing false information in tax returns, and for invalid transactions. Liability is also provided for company directors (including their personal assets), chief accountants and any employee whose involvement in such violations as an instigator, accomplice, etc. is proved.

No. 21. Excise goods

An increase in excise rates set out in Article 193(1) of the Russian Tax Code is provided for tobacco, cigars, cigarillos, cigarettes, papirosi cigarettes, passenger cars, motorcycles, diesel fuel and other excisable goods. From January 01, 2018 to June 30, 2018, cigarettes and papirosi cigarettes will be subject to an excise rate calculated on the basis of RUB 1,562 per 1,000 cigarettes + 14.5% of their estimated value calculated from their maximum retail price, but no less than RUB 2,123 per 1,000 cigarettes (Federal Law No. 254-FZ dated July 29, 2017).

No. 22. Surcharge rate

Buildings are excluded from depreciable capital assets classified as facilities with high energy efficiency or with high energy efficiency class for which taxpayers are entitled to apply a special rate, although not higher than 2, to the main depreciation rate. Sub-item 4 has been added to Article 259.3(2) of the Russian Tax Code to provide that taxpayers are entitled to apply to the main depreciation rate a special rate, although not more than 3, for depreciable capital assets used in water supply and sanitation according to the list established by the Russian government.

No. 23. Participation interest

The procedure for determining the tax base for income received from participation interest in other organizations has been clarified by introducing new provisions in Article 271(4.1) of the Russian Tax Code. These new provisions set out that concession grantor payments received in cash under concession agreements are recorded in accounting as subsidies.

No. 24. Mass media state duty

State duty rates will change, so from the beginning of next year, state duties will range from RUB 4,000 to RUB 8,000 depending on territorial distribution (Article 333.33(1) Russian Tax Code), and it will no longer be required to pay duties to amend mass media state registration certificates.

No. 25. Cadastral value

Article 378.2(12) of the Russian Tax Code establishes how to calculate property tax for organizations based on cadastral value.

Sub-item 2.1 will be added in the aforementioned article on January 01, 2018 to set out that if the cadastral value of a property owned by foreign organizations not operating in the Russian Federation through permanent establishments, real estate properties unrelated to operations carried out in the Russian Federation through permanent establishments, as well as residential buildings and residential premises not recorded in balance sheets as fixed assets was determined in accordance with Russian law during the tax (reporting) period, the tax base will be determined, and the tax amount payable for this period and this particular property will be calculated based on the cadastral value determined on the date of registration in the State Register of Real Estate Property of the information used as basis to determine the cadastral value of such property.