Changes in accounting and tax legislation -Publication

Key Changes in Accounting and Reporting in 2020

RAS 18/02 (Russian Accounting Standard) has seen considerable amendments: temporary and permanent differences, as well as net profit shall now be calculated and reported in a new way: From 1 January 2020, differences shall be accounted as a whole by type of assets and liabilities rather than by individual income and expenditure. This method is called the balance sheet method because the accountant compares the book value of the asset or liability with its value for tax purposes (Clause 8 of RAS 18/02).
According to the Ministry of Finance, companies should already apply either new FAS 25/2018 (Federal Accounting Standard) or IFRS (International Financial Reporting Standard) for lease (Clause 7.1 of RAS 1/2008), although the standard will be formally mandatory from 2022.
From 2020, accounting statements shall only be submitted electronically to the Federal Tax Service (from 2020 onwards).
The Income Statement for 2020 shall be submitted according to a new form. It takes into account the amendments made to RAS 18/02.

According to the Ministry of Finance, companies should already apply either new FAS 25/2018 (Federal Accounting Standard) or IFRS (International Financial Reporting Standard) for lease (Clause 7.1 of RAS 1/2008), although the standard will be formally mandatory from 2022.

From 2021, accounting will see most important changes:

Inventories shall be accounted under the regulations stipulated by new FAS 5/2019.

Actually, in 2020, accountants have to gain insight into three new and complex standards at once. Accounting according to RAS 18/02 is technically simplified, but requires to “rethink” the existing concept of the differences between accounting and tax records data. Lease contract accounting according to FAS 25/2018, as well as inventory accounting according to FAS 5/2019 will become much more complicated from 2021. Accountants will have to understand new terms, such as fair value and discount rate, and the rules for calculating them. The accounting rules will now be even closer to IFRS standards, which is probably a positive change for large businesses, but will also make accounting more complicated and time-consuming for small and medium-sized businesses.

Key Changes in Tax Legislation in 2020

Corporate Property Tax

The tax rate has decreased to 2% (previously 2.2%).
Reporting on advance payments of property tax has been abolished.
The tax is calculated based on a cadastral value.

Income Tax

Dividends received abroad are included in taxable income, irrespective of whether taxes have been paid on this income abroad.
Intellectual property assets with the initial value under RUB 100,000 are not deemed amortisable property.
The amortisation method shall be chosen for five years.
The regulation allowing for the reduction of the tax base for the current period by up to 50% of the amount of losses from previous years has been extended.
The successor is prohibited from recognizing the predecessor’s losses if the inspectorate finds that the main purpose of the reorganisation was loss recognition.
More expenses may be accounted as part of the investment tax deduction, including the costs of creating certain transport, utility and social infrastructure facilities.
Parties to regional investment contracts may pay 0% income tax subject to the new rules set out in Articles 2 and 3 of Federal Law No. 269-FZ dated 02 August 2019. The new rules may be applied either to profits from investment contract activities, provided that separate records of income and expenses are maintained, or to all profits received, if the profits from investment contract sales account for at least 90% of all income net of exchange rate differences.

VAT

VAT deductions on purchases intended for the creation of intangible assets may be applied immediately, before the intangible asset is ready for use.

It should also be noted that major VAT changes are coming for IT companies from 2021:

The VAT exemption – tax exemption for sales of computer software and database rights – from now on will only apply to sales of software that is included in the Russian software register (however, the exemption will not apply to software transferred for the purpose of internet advertising or prospecting). IT companies selling software included in the state register will also be able to deduct input VAT on marketing and promotional services purchased to sell such software.

Transport and Land Taxes

There is no need for submitting the tax return for these taxes: the tax inspectorate will send in the amounts to be paid.
If a company is entitled to exemptions from these taxes, it shall apply for the exemption to the tax inspectorate.
Starting with the tax payment for 2020, the deadline for payment of transport and land tax is before 1 March of the year following the reporting period, and, as for advance payments, – before the last day of the month following the expired reporting period. The deadline is established at the federal level and the regions no longer set it.

Simplified Taxation System

In 2020, individual entrepreneurs working in certain areas according to the Simplified Taxation System (STS), who are newly registered with the tax authority, may pay a zero tax rate.
STS taxpayers affected by the coronavirus may take advantage of relief and exemptions from advance payments.

From 2021 onwards:

If certain conditions are met, tax holidays for STS taxpayers will be extended until 2024.
The changes entail higher rates and new limits: the simplified taxation system may be applied to those having income below RUB 200 mln with the average number of employees below 130 people. Two rates will be applied for each taxation entity, which will depend on the amount of income and the number of employees.

Unified Tax on Imputed Income

From 2021 onwards, Unified Tax on Imputed Income will be abolished. Taxpayers will be deregistered automatically.
In order to transfer to the simplified taxation system, the taxpayer shall submit a notification by 31 December 2020 (the simplified taxation system is restricted by the number of employees – not more than 130, and annual income – not more than RUB 200 mln).
An individual entrepreneur may also choose a patent. The annual income may not exceed RUB 60,000,000 and the number of employees may not exceed 15.
If taxpayers do not choose a new tax regime on their own by the end of the year, they will be transferred to the general taxation system.

Tax Management

From October 2020, it is possible to offset an overpayment for one tax against another, regardless of the tax type (federal, regional or local).
From October 2020, it is only possible to refund overpaid tax if the company has not underpaid any other tax.
The tax authorities will have greater powers to collect significant underpayments above RUB 1 mln: they will be entitled to inspect the debtor’s premises, property and documents if the debtor agrees.
From April 2020, the tax inspectorate has been entitled to take a lien on property as a security measure if a company failed to pay its tax debts within a month.
From April 2020, the limit of insignificant taxpayer outstanding debt has been increased from RUB 500 to RUB 3,000. The tax authorities now enjoy a longer period (up to 1 year) for sending a debt payment notice. For more significant debts, a notice to pay is sent within three months.
Moreover, the tax authorities are no longer entitled to block the account of entities and individual entrepreneurs if the debt to the budget is below RUB 3,000.
From April 2020, tax officials may inform taxpayers of arrears and debts related to fines, penalties and interest by SMS, email or other means.
The interaction procedure for the tax authorities and the Multifunctional Public Services Centers to submit and receive documents to/from the tax authorities has been defined.
The list of companies that are obliged to submit information to GIRBO (State Information Resource for Accounting (Financial) Reporting) has been extended. All entities now submit information there, except for religious and public sector organisations, entities with accounts containing information classified as state secrets and entities that report to the Central Bank of the Russian Federation, and in some other cases set by the Russian government. For example, these are entities under foreign sanctions (Resolution No. 35 dated 22 January 2020). Entities are required to submit reports to GIRBO not later than 3 months after the end of the reporting year.
From 2020, a new procedure for submitting adjusted financial statements to GIRBO has come into force: the adjusted document shall be submitted not later than 10 days after the changes are made.
From 2020, GIRBO is run by the Federal Tax Service (FTS) and not by the Federal State Statistics Service. The FTS base will include accounting statements from 2019. Full access to the database can be obtained on a commercial basis through requesting the accounting statements of counterparties for a subscription fee of RUB 200,000 per year.

Other Important Changes in 2020

For the whole year 2020 (until 1 July 2021), there will be a deferral for the use of online POS for individual entrepreneurs without hired employees who sell proprietary goods or operate in the service sector.
In 2020, the initiatives aimed at implementing the mandatory labelling project for many types of goods were developing. Thus, from 2020, mandatory labelling will apply to light industry products, cigarettes, photography goods, car tires, bicycles and some other categories of goods. The number of products to be labelled will further increase, up to 2024.
In 2020, many policies were eased due to the coronavirus: small and medium-sized enterprises had the opportunity of deferral and instalment payments of taxes and insurance premiums; entities and entrepreneurs were allowed to submit their returns later than usual; tax audits were suspended for several months.
In 2020, the Multilateral Convention on Implementing Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS, internationally known as the Multilateral Instrument – MLI), of 24 November 2016, was enacted into law and from 2021 will come into force in Russia to prevent tax base erosion and counter tax evasion and abuse of tax incentives under international double tax treaties. The provisions of this convention will now have to be taken into account when paying any funds to foreign companies or individuals. Signatories include Cyprus, Luxembourg, Switzerland, Austria, the UK, the Netherlands and others frequently used in the creation of international structures. It should be noted that Russia has not included Switzerland, Germany and Sweden in the list of countries with which it plans to apply the MLI. It means that the double tax treaties with these countries will not be changed. A full list of countries with which Russia plans to apply the MLI is specified in the MLI Ratification Law.
As of now, memoranda have been signed with Malta, Cyprus and Luxembourg to reduce the possibility of applying reduced dividend tax rates in 2021. A draft law on denunciation of the double tax treaty with the Netherlands was prepared by the Ministry of Finance after several rounds of negotiations on its amendment had failed.

In 2020, there were significant changes in the tax legislation, as well. Many of them were aimed at simplifying tax management procedures, which must certainly have a positive impact on business:

there appeared a possibility of offsetting tax overpayments from different budgetary levels,
the statutory limits on insignificant tax arrears have been increased,
entities have been exempted from the obligation to submit returns for land and transport taxes, as well as from calculations of advance payments for property tax,
the procedures for informing taxpayers and submitting documents to the tax inspectorate have become quicker and more convenient.

Besides, during the year, various measures at the legislative level were introduced to support small and medium-sized businesses in the context of the coronavirus. Next year, 2021, could be even tougher for small and medium-sized companies in many industries; the implementation of appropriate legislative measures to support such companies will be extremely important both for the people engaged in these industries and for the country’s economy as a whole.

Note that the 2020–2021 changes tend to increase tax controls on import transactions and taxation of multinational companies in Russia. The abolition of the VAT exemption for the sale of imported software is aimed at supporting domestic developments in this area.