07.12.07

Note: This article is not a translation of the Russian original, but rather an adaptation that strives to deliver the same basic information as the Russian original, but in a format that provides more explanation for those English readers which may not be familiar with Russian legal terms and concepts. If you have questions or comments about this article, please, send us a note!

Gift Certificates as Corporate Gifts:
Accounting and Tax Issues in Russia
Galina Klimenko
Auditor, Alinga Consulting Group

The gift certificate is a relatively new arrival to Russian business. In Russia, cash has always been king. For instance, most Russians have never heard of the concept of the personal check and many laugh at the concept when they hear it. In Russia, if it isn't money, it isn't worth the paper it's printed on.

Nearly all Russians, however, are willing to trust gift certificates. While a personal check comes with only the guarantee of an individual, a gift certificate most often comes with the backing of a well-known company name and brand reputation.

What's more, gift certificates are now quickly gaining in popularity in Russia, and are offered by businesses as diverse as electronics stores and restaurants.

This can be welcome knowledge to anyone looking for useful holiday gifts for clients. It can be doubtful if a recipient will really find use for another desk calendar or coffee mug, but you can be reasonably sure that a nice dinner or even help buying the latest popular gadget will be remembered and appreciated.

Before jumping at this opportunity, however, there are several points of which managers and accountants should be aware.

The rest of this short article will discuss in brief the accounting issues related to offering gift certificates as gifts to clients. The subject, like most issues in law and taxation, is fairly complex and thus it makes sense to keep a tight focus when discussing its various aspects. Please be aware that this discussion pertains specifically to the purchase of and subsequent gifting to clients of gift certificates.

Gift certificates represent a very special case under Russian Accounting Standards and Russian taxation. Much has been written on the subject.

Managers should know that the Russian version of this article offers a much more technical look at the specific accounting procedures that will need to be taken for this transaction. We recommend you refer your accountant in Russia to that article for more information.

Essentially, issuing a gift certificate is regarded by Russian Accounting Standards as a receipt of advance payment for goods, services, or labor. Thus, the company from which you purchase the certificates cannot issue an invoice for their "sale;" the sale will only occur when the certificate is redeemed and even at that point the documentation is given to the individual redeeming it.

As such, documentation of the purchaser's transaction is lacking, and so it is important to complete a "statement of transfer and acceptance." Again, your accountant should know what this is after reading the Russian version of this article. We also strongly advise, if at all possible, to make photocopies for your records of any gift certificates issued. However, this can be unworkable if an exceptionally large number of certificates are issued.

From the tax standpoint, Russian legislation states that expenses related to acquiring the certificates can be written off as advertising expenses. However, the total amount that can be written off as advertising expenses is capped at 1% of a company's gross income.

If the cost of acquiring each gift certificate totals 100 RUR or more, VAT will need to be paid on the sum cost of the transaction.

Finally, Russian legislation allows a gift certificate to take nearly any form, from plain paper to a plastic card, so long as it states that the holder of the certificate may exchange it for goods, labor, or services valued at a sum stipulated on the certificate.

You should ask when purchasing gift certificates if there are any requirements or restrictions on using them. For example, some merchants may require the entire certificate to be used in one sitting and that the user forfeit any unused change. Russian legislation stipulates that gift certificates can be redeemed and recorded only for their face value and not for any other sum. Thus, purchasing multiple certificates for smaller sums may be advisable if you believe the recipient will not be able to use the full certificate in one sitting.

In conclusion, gift certificates can be effective advertising in Russia. They are gaining popularity with businesses and customers alike and are now relatively well established in accounting practice and legislation. However, managers should be sure that accounting regulations are being followed closely.

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