Advertising
Advertising represents a type of information that is designed for the general public and aims at drawing attention to the advertised item, keeping it in the spotlight, and promoting it at the market. Advertising may be distributed by any method, in any form, and through any means.The list of potential advertised items includes:
- product;
- company or product brand identity;
- product manufacturer or distributor;
- copyright products;
- activity (Article 3 of the Law dated 13.03.2006 No.38-FZ).
Nota Bene! Distribution of products containing a company logo or promotional materials at conferences, during negotiations with business partners, workshops, etc. is not treated by tax authorities as advertising expense, provided that the target audience of the information may be determined.
Profit tax
When calculating the profit tax, the advertising expense is recognised as part of other expenses associated with manufacturing and sales activities (Sub-Clause28 Clause1 Article264 of the Tax Code of the Russian Federation).If a contract does not provide for a one-time distribution of advertising services, but envisages such distribution over a certain period, e.g. a year, then the advertising expense will be recognised:
- as advertising is publicised based on the advertiser’s report;
- in equal parts on a monthly basis over the term of the contract, provided that the advertising placement report is presented on a monthly basis or year-round.
Such expense, as for instance creation of a video advertisement, may be recognised as one-time expense, provided that such video advertisement is not an amortisable asset. (If the cost of the video advertisement exceeds RUB 40,000 and the company uses it as advertising over a period exceeding one year, this video advertisement will be recognised as an intangible asset for tax purposes).
When calculating the profit tax, the advertising expense is recognised as part of other expenses associated with manufacturing and sales activities (Sub-Clause28 Clause1 Article264 of the Tax Code of the Russian Federation).
If a contract does not provide for a one-time distribution of advertising services, but envisages such distribution over a certain period, e.g. a year, then the advertising expense will be recognised:
- as advertising is publicised based on the advertiser’s report;
- in equal parts on a monthly basis over the term of the contract, provided that the advertising placement report is presented on a monthly basis or year-round.
Such expense, as for instance creation of a video advertisement, may be recognised as one-time expense, provided that such video advertisement is not an amortisable asset. (If the cost of the video advertisement exceeds RUB 40,000 and the company uses it as advertising over a period exceeding one year, this video advertisement will be recognised as an intangible asset for tax purposes).
Advertising expense for tax purposes is either a non-normalised or normalised expense.
Non-normalized expense:
- advertising in the media,
- advertising in the information and telecommunications networks (including the Internet), as well as in the movies and videos,
- illuminated and other types of outdoor advertising, including panels and boards,
- participation in exhibitions, fairs, expositions,
- decoration of showcases, trade fairs, showrooms, and salesrooms,
- preparation of advertising booklets and catalogues containing the information concerning the offered products (works, services), trademarks, and service marks, or concerning the company itself,
- markdown of the products that have fully or partly lost their initial properties during exposition.
Normalized expense
- purchase or fabrication of the prizes awarded to the winners of public promotional activities;
- expense associated with other types of advertising that does not make part of the normalized expense, including:
- distribution of leaflets and flyers;
- indoor advertising panels and billboards
- distribution of promotional merchandise with a logo.
VAT
Starting from 2015, the input VAT on normalised and non-normalised advertising expense has been fully deductible.Distribution of advertising materials that do not have a consumer value of their own, i.e. cannot be subsequently resold (catalogues, booklets, leaflets, flyers, brochures, etc.) is recognised as expense rather than as free transfer. Accordingly, such instances do not provide any VAT base.
Distribution of advertising materials that can be subsequently sold (promotional merchandise, etc.) is treated as free transfer and is VAT-taxable (excluding the instances below).
A free transfer of products for promotional purposes is VAT-exempt, if the acquisition cost per unit of such products (inclusive of VAT invoiced by suppliers) does not exceed RUB 100.
Personal income tax
The cost of prizes, merchandise, and gifts distributed during a promotional campaign to private individuals is treated as their income in kind. This income is subject to the personal income tax, provided that the cost of promotional merchandise transferred to a specific individual over the course of a tax period exceeds RUB 4,000.
Representation expense
The following expense may be recognised as representation expense:
- official reception and (or) service (including catering at business meetings) of other companies’ representatives, as well as of the representatives of the company itself,
- provision of transportation to the venue of the official activity and (or) meeting of the management body and back,
- services of translators (who are not on the company’s payroll) during the official activities.
The representation expense, including the expense incurred by an employee in a business trip does reduce taxable profit (Sub-Clause22 Clause1 Article 264 of the Tax Code of the Russian Federation). But this concerns the instances when such expense conforms to Clause1 Article 252 of the Tax Code of the Russian Federation, i.e. is documented, economically sound, and potentially income-bearing.
When calculating the profit tax, representation expense is recognised within a normal range. The normal range is equal to 4 percent of the payroll expense in the reporting (tax) period when the representation expense is incurred.
Documentation of representation expense
The representation expense may be confirmed by any primary documents serving as proofs of such expense and of the economic soundness thereof. The legislation does not provide a specific range of such documents.The following documents may confirm the economic soundness of representation expense:
- cost estimate adopted by the minutes of the general meeting of company shareholders or by the company director for a specific period;
- director’s order sanctioning representation expense;
- report on the activities during which the representation expense was incurred;
- representation expense report approved by the company director;
- any other documents attesting to the business nature of the expense.
- the purpose and results of activities;
- date and venue;
- list of participants (both the host’s and the guest’s representatives);
- total expense, etc.
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