Tax incentives for IT companies

Creating comfortable conditions for the IT industry’s development is one of the most important tasks for the Russian Government.

The law on the "tax maneuver in the IT-sphere" was submitted to the State Duma on July 16 and was approved by the Federation Council on July 24. Federal law No. 265-FZ "On amendments to part two of the Tax Code of the Russian Federation" was signed by the President of Russia on July 31, 2020.

That’s why today we decided to analyze what will change in this sphere.

Insurance contributions

Starting from January 1, 2021, rates of insurance contributions will change for those IT companies that currently apply reduced insurance rates, as well as for organizations that design and develop electronic component base products and electronic products that now pay insurance contributions at regular rates.

Corresponding changes were made to article 427 of the Tax Code of the Russian Federation.

Let’s have a look at the changes:

Rates in 2017−2020: Pension Fund (8%) + Social Insurance (2%) + Medical Insurance (4%) = Total Rate (14%)
Rates from 2021: Pension Fund (6%) + Social Insurance (1.5%) + Medical Insurance (0.1%) = Total Rate (7.6%)

Thus, the Total Rate was reduced by half.

But the conditions for receiving benefits have changed. Reduced rates of insurance contributions from 2021 will be received by Russian organizations that:

carry out activities in the sphere of information technology;
develop and implement computer programs and databases designed by them on a physical medium or in the form of an electronic document via communication channels, regardless of the type of contract;
provide services for the development, adaptation, modification of computer programs, databases (software and information products of computer technology);
install, test, and maintain computer programs and databases.

Moreover, to receive the benefit, three conditions must be met simultaneously:

The organization must receive the State Accreditation of the organization that operates in information technology.
The average number of employees of the organization for the reporting period must be at least 7 people.
Income from the implementation of the programs and services at the end of each reporting period must be at least 90% of the organization’s total revenue.

If an organization does not meet at least one of the conditions listed above (it loses the accreditation, reduces the number of employees below 7, or reduces the income from the implementation of the programs below 90%), it will lose the benefit from the beginning of the tax period, and it will have to recalculate the total amount of the contributions and pay all the sum.

Profit tax

Now all IT companies pay it at the rate of 20% (17% to the regional budget, and 3% to the federal budget).
Starting from January 1, 2021, for some IT companies, that design and develop electronic component base products and radio-electronic products, the 3% rate of the profit tax is set (3% to the federal budget and 0% to the regional budget). This means that the benefit will be given at the expense of regional budgets, and the regions will lose all the income tax from these IT companies.
Reduced income tax rate 3% will be applied by the same IT organizations that will have reduced insurance contributions (7.6% of the payroll). The conditions for receiving income tax benefits are completely similar to the requirements for receiving reduced rates of insurance contributions.

VAT

The taxation of IT companies with value-added tax has also changed.
In accordance with the Tax Сode of the Russian Federation, it is established that the sale of exclusive rights on computer programs, as well as rights to use them on the basis of a license agreement, is not subject to taxation.

But it has been amended. Starting from January 1, 2021, not all programs developed by the company will be exempt from VAT, but only programs included in the "Unified register of Russian computer programs and databases".

The words "based on the license agreement" were also removed from the text. This means that the implementation of rights to use these programs will be exempt from VAT in any way: under a license or sub-license agreement, as well as by providing remote access to these programs via the Internet, including updating them and providing additional functionality.

It is stipulated that the implementation of the rights to use computer programs will not be exempt from VAT if such rights include the opportunity to distribute any advertising information about the programs.

It is important to note that when receiving benefits for income tax and insurance contributions, there is no requirement for including programs in the "Unified register", which is mandatory for receiving VAT benefits. At the same time, to get the benefits of VAT exemption, there are no conditions about the limit of the number of staff, accreditation of the company, and the share of income from implementing programs that are necessary for getting the benefits on insurance contributions and income tax.

All in all, a lot of IT companies will receive a significant reduction in insurance contributions from 2021. But also, there will be lots of companies that will be required to pay VAT, which they have never paid so far.

Considering all the advantages and disadvantages for your company, you still have the opportunity to switch to a Simplified Tax System before the end of the year. Read more here "The Simplified Tax System in Russia (6% and 15%)"

And don’t forget that our team of specialists is always at your service to help you choose the best taxation option for your company and we are ready to consult and assist you in many other issues.

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