Russia has enacted new tax amendments extending VAT exemptions for catering businesses under the Simplified Tax Regime, expanding deductible expenses, and providing transitional relief for entrepreneurs switching from the Patent Tax System, with changes taking effect from 1 January 2026.
Russia has published the Federal Law No. 104-FZ of 25 April 2026 in the Official Gazette, which introduces several significant amendments to the Russian Federation Tax Code, particularly regarding Value Added Tax (VAT) and the Simplified Tax Regime (STS).
These changes are as follows:
VAT exemption for catering businesses
Organisations and individual entrepreneurs (IPs) transitioning to or using the Simplified Tax Regime (STS) may maintain or regain their exemption from VAT obligations under specific conditions:
To qualify for the exemption through 31 December 2026, the total income for 2025 must not have exceeded RUB 60 million. For businesses specifically in the public catering sector, the exemption applies if the share of income from catering services accounted for at least 70% of their total revenue in 2025.
This rule applies even to those who technically lost their right to the exemption starting 1 January 2026, provided they meet the aforementioned income and revenue share criteria.
Input VAT deduction
The amendments clarify and expand the rules for claiming VAT deductions:
- Gasification services: VAT amounts presented to taxpayers for services related to the connection (technological joining) of gas-using equipment to gas distribution networks are deductible, provided these services are performed free of charge for the applicant under government-mandated programmes.
- Transition from patent system: IPs who lose the right to the Patent Tax System and begin fulfilling VAT obligations can take VAT paid on purchased goods, services, or fixed assets into deduction, provided these assets were not previously used under the patent system.
- Relationship with STS expenses: Under the Simplified Tax Regime, VAT paid on purchased goods and services that are included in deductible expenses is generally recognised, unless that VAT has already been claimed as a deduction under the general VAT rules (Chapter 21).
Transitioning to the STS
New provisions facilitate the transition for individual entrepreneurs who were previously using the Patent Tax System:
- Late transition option: IPs who used the Patent system in December 2025 and saw their 2025 income exceed RUB 20 million have a special window to transition to the STS.
- Notification deadline: These entrepreneurs must notify the tax authority of their transition to the STS no later than 1 June 2026. This transition is then retroactively applied from 1 January 2026.
- Changing the tax object: Those transitioning under these terms or who already switched on 1 January 2026 are permitted to change their chosen tax object (e.g., from “Income” to “Income minus Expenses”) by notifying the tax office by the same 1 June 2026 deadline.
New expenses deductible under the Simplified Tax Regime
The law updates the list of deductible expenses and sets new limits for certain business costs:
- Official transport maintenance: Expenses for the maintenance of official transport, including automobiles, rail, and air transport, are explicitly deductible.
- Personal vehicle compensation: When employees use personal vehicles for business purposes, the monthly compensation limits have been updated:
- RUB 2,400 for cars with an engine capacity up to 2000 cc.
- RUB 3,000 for cars with an engine capacity exceeding 2000 cc.
- RUB 1,200 for motorcycles.
- Taxes and fees: Taxpayers can deduct paid taxes and fees, with the notable exception of VAT and the tourist tax (tourist levy).
Beyond the measures previously discussed, the Federal Law of April 25, 2026, includes several additional tax relief and administrative adjustments designed to benefit SMEs and IPs.
Tax relief for transitional advance payments
The law provides a specific relief mechanism for organisations and IPs using the STS who receive prepayments (advances) for goods or services.
If a taxpayer receives an advance while they are not a VAT payer (or are exempt) but then becomes a VAT payer by the time the goods are actually shipped, they are permitted to reduce their taxable income by the amount of VAT charged to the buyer.
This applies if the VAT amount is returned to the buyer or if the VAT was not originally included in the price. This measure prevents “double taxation” on the VAT portion of the income during a transition into VAT-paying status.
Clarification of eligibility for targeted incentives
The law refines the criteria for businesses seeking to qualify for certain tax benefits that require a specific percentage of revenue from primary activities (often 70%).
For the purposes of meeting these thresholds (such as those in Article 427 of the Tax Code), the law specifies that “total income” should be calculated based on the rules of the taxpayer’s specific regime—whether that be the STS, Corporate Profit Tax, or Personal Income Tax. This provides greater legal certainty for SMEs verifying their eligibility for sector-specific reliefs.
Tax neutrality for bond exchanges
While specific to financial instruments, these measures provide relief for businesses holding foreign currency bonds:
- Exclusion of exchange income: The value of “replacement bonds” (ruble-denominated bonds) received in exchange for foreign currency bonds is not considered taxable income for corporate profit tax purposes, provided the exchange meets certain regulatory requirements.
- Expense recognition: When these replacement bonds are eventually sold or redeemed, the taxpayer can recognise the documented expenses originally incurred to acquire the foreign currency bonds they replaced.
