10.12.08

Anti-Crisis Changes To Russia's Tax Legislation:
VAT, Personal Income Tax, Profit Tax
By Yulia Mazur, Partner, Head of the Accounting Department
Alinga Consulting Group

New anti-crisis changes to Russia's tax legislation have already come into force. Federal Law # 224 from November 26, 2008 was published in "Rossiyskaya Gazeta" on November 27, 2008. Below is quick summary and analysis of that law.

VAT

1. Barter and "swapping" operations no longer require VAT to be calculated and transferred to the contactor. (Article 168, paragraph 4, part 2 of the Tax Code is repealed).
2. VAT paid to a supplier as advance payment (partial payment) for future deliveries is now tax deductible. The process by which the supplier issues an invoice to the buyer for the amount received as down payment is clarified. If the transaction is cancelled and advance payment is reimbursed, VAT is also returned.

Personal Income Tax

The property-related tax deduction is increased from 1,000,000 to 2,000,000 rubles. This change is applicable to all contracted sales made on or after January 1, 2008.

Profit Tax

1. Tax rate decreased to 20 %.
2. Bonus depreciation for certain types of capital assets (groups 3-7 in the Russian Tax Code) is increased to 30%. This includes costs of completion, reconstruction and modernization of such capital assets as well. However, if property for which this bonus depreciation was used is sold less than 5 years after it was put into operation, the bonus depreciation amount must be reimbursed from expenses (decreasing expenses for the sale period of these capital assets.
   
   The depreciation reduction factor (0.5) is cancelled for cars and passenger vans which cost 600,000 and 800,000 rubles, respectively.
   
   The Tax Code has been supplemented by Articles 259.2 and 259.3. Article 259.3 describes available reducing and increasing depreciation factors.  Article 258 "Amortization Groups. Special considerations for including amortizable assets into amortization groups" and Article 259 "Methods and procedures for calculation of amortization amounts" have been completely rewritten.
3. From September 1, 2008 through December 31, 2009, for calculation of "maximum interest" paid on debt obligations (in cases when comparison of interest rates for other obligations with comparable conditions is not possible), the following rates are to be used: a) refinancing rate of the Central Bank of Russia multiplied by 1.5 times – for debt liabilities in ruble amounts; and b) 22 % yearly rate – for liabilities in foreign currency amount (previously – refinancing rate multiplied by 1.1 times – for ruble-amount liabilities, and 15 % - for currency-based loans and credits).
4. Taxpayers filing quarterly tax reports and making advance profit tax payments during one month following the last month of the reporting period, in equal shares based on declared taxable amount for the previous fiscal period, may start calculating and making monthly advance tax payments based on actual profit starting now, November 28, without waiting for new fiscal period.
   

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