The Federal Tax Service (FTS) of Russia has issued a reminder on the proper application of reduced VAT rates of 5% and 7%.
This announcement was made by FTS on 17 March 2025.
Organizations and entrepreneurs must apply these rates consecutively for 12 consecutive tax periods (three years). The use of the reduced rates begins with the submission of the first VAT return using these rates, and businesses are not allowed to switch to the standard 20% VAT rate before the end of the three-year period.
The FTS also highlighted that early termination of the reduced rates is possible if a taxpayer under the simplified taxation system (STS) automatically qualifies for VAT exemption. This exemption applies if their income for the previous year is less than RUB 60 million rubles, or if their income in the previous or current year exceeds RUB 450 million.
The FTS clarified that switching between the 5% and 7% VAT rates does not interrupt the three-year period, but receiving a VAT exemption resets the period. Businesses that lose their VAT exemption must restart the 12-quarter period upon regaining eligibility for VAT charges.
These clarifications aim to ensure consistency and transparency in the application of reduced VAT rates, helping businesses comply with tax regulations.
