Russia’s Ministry of Finance presented a set of draft laws to the Russian Government intended to enhance the tax system on 29 May, 2024. The package contains several major amendments to the Tax Code, Budget Code and Budget Law for 2024 and the planned period of 2025 and 2026.
These amendments were reviewed and approved by the Government Commission for Law-Making on the same day. The draft laws are expected to be passed by the State Duma in the current session and will come into effect on 1 January, 2025.
Tax Code amendments
The proposed reforms focus primarily on revising the progressive personal income tax (PIT) scale. Under the new system, tax rates will increase based on income thresholds, introducing higher rates for high earners.
Currently, the PIT is set at 13% for income up to RUB 5 million annually and 15% for income exceeding that amount. The new structure will lower the 13% threshold to RUB 2.4 million and introduce higher rates for incomes above this level, reaching up to 22% for those earning over RUB 50 million per year.
Adjustments to CFC profit taxation
The draft law requires that the tax payable on a CFC’s (controlled foreign companies) fixed profit will now be proportional to the number of CFCs controlled by an individual.
This change could potentially increase the tax burden on controlling persons, necessitating a more detailed analysis for optimal tax planning.
Corporate profits tax and STS modifications
Corporate entities will see an increase in the profits tax rate from 20% to 25%, although this will not affect existing tax incentives for investment and development projects. Additionally, the 0% tax rate for IT companies will be replaced with a 5% rate from 2025 to 2027.
The simplified taxation system (STS) will also undergo modifications aimed at preventing tax avoidance through business splitting.
The threshold for applying the STS will be raised to RUB 450 million, with income exceeding RUB 60 million subject to VAT. Taxpayers will have the option to choose between standard VAT rates with deductions or new rates of 5% and 7% without deductions.
