On 2 March 2022, the Russian President signed Decree No. 83* (the “Decree”) introducing new support measures for qualifying Russian IT companies.
New measures introduced
The tax support measures introduced by the Decree among other measures aimed at support of the individuals working in the IT sphere, include the introduction of a 0% corporate profit tax rate for IT companies holding a state accreditation certificate that will apply until 31 December 2024.
Currently, the qualifying IT companies in Russia may already enjoy a reduced 3% corporate profit tax rate instead of the general tax rate of 20%, subject to fulfilment of additional criteria set forth in the Russian Tax code (refer to our previous alert for more details).
The Decree also exempts qualifying IT companies from the tax, currency and other forms of state and municipal control for the period not exceeding three years. This initiative has already been partly enacted in Draft law № 80712-8*, which recently passed its second reading in the Russian parliament.
These measures together with other tax incentives currently considered by Russian legislators (such as the accelerated depreciation for local IT solutions proposed in Draft law № 77694-8* recently introduced to the Russian parliament), are intended to further support the IT sector of the Russian economy during this turbulent business environment.
Qualifying IT companies
The Decree extends the scope of the eligible activities allowing the qualifying IT companies to enjoy the applicable tax incentives. According to the Decree, the list of IT companies enjoying the tax incentives is extended to those generating revenues from:
- advertising dissemination and placement activities;
- provision of additional services with the use of application and online solutions;
- distribution, installation, testing and maintenance of Russian IT solutions.
The qualifying IT companies must be accredited with Russia's Ministry of Digital Development, Communications and Mass Media. To be eligible for accreditation, a company must be (i) incorporated in Russia with relevant codes of economic activities, and (ii) carry out the following activities in the field of IT:
- developing and implementing software and databases on physical media or in electronic form, regardless of the type of contract; and/or
- providing services (i.e. performing work) for the adaptation, modification, installation, testing and/or maintenance of software and databases.
We note that for the purposes of tax incentives additional criteria are established (e.g. companies with 90% revenue share from IT activities and having not less than seven employees). The current Decree, however, does not refer to such requirements. We expect that the government will clarify the eligibility criteria shortly.
The Decree does not immediately introduce the described support measures into the Russian legislation, but rather invites the Russian government to elaborate the necessary legislative framework for the announced initiatives. It is thus expected that this legislative framework will also clarify the existing open points on the measures at stake.
For example, it is now unclear whether the new tax incentives will be subject to additional criteria, which is currently the case for the tax support measures introduced in 2021 (refer to our previous alert for more details) that depend on eligible turnover and headcount criteria fulfilment.
It is also expected that the new legislation will clarify whether the extended scope of eligible IT activities will cover only self-developed IT solutions, or also those acquired from third parties. In a latter case, it should be specified whether the initial software developer should also meet the qualifying criteria for the application of the incentives. The definition of the terms “Russian IT solutions” and “prominent Russian developments in IT field” mentioned in the Decree also need to be further elaborated.
The expected legislation should also clarify the details of the moratorium on the state (in particular tax) control initiation. In case this measure is introduced on a temporary basis, and upon expiration of a three-year period, control may still be initiated, covering the previous periods as well (i.e. the tax control initiated in 2025 may under the general rule cover the 2022-2024 perspective). In this case, the positive impact of this measure will in fact be neutralised.
Our Digital law and Tax teams will be closely monitoring further developments in this area and will keep you informed of the new clarifications and legal documentation appearing in this domain.
For further information, please contact our experts below or your usual contact at CMS Russia.
* In Russian