Tax incentives for small and mid-sized companies

What benefits can small businesses apply?

First of all, these are special tax regimes.

In accordance with the Tax Code, small businesses can apply the following special tax regimes:

  • the taxation system for agricultural producers (unified agricultural tax);
  • simplified taxation system (STS);
  • the unified tax on imputed income for some types of activities;
  • the patent system of taxation.

In addition, regions may provide benefits for corporate property, land, and transport taxes.

The most popular benefit in Russia is the possibility to use the Simplified Taxation System. Small companies can use the Simplified Taxation System if:

  • The income doesn’t exceed 150 million roubles.
  • There are no more than 100 employees in the company.
  • Not more than 25% of the shares in the company belong to another organization
  • The value of the fixed assets is not more than 150 million rubles
  • the company is not the branch or representative office of international organizations
You can read more about this system of taxation in one of our articles here: The Simplified Tax System in Russia (6% and 15%)

Under the first option, provided by this STS, you pay 6% tax on your income. This does not mean that no expenses are taken into account at all when calculating the amount of tax. The following expenses may be deducted from the sum of the tax to reduce it:

  • Compulsory contributions to the Russian Pension Fund for the employees
  • Compulsory contributions to the Social Security Fund of Russia

However, the tax payment may not be reduced more than 50%.

The second option of this system is to pay the tax on your revenue minus the costs. Under this variant, you pay a 15% tax on the sum you get after deducting the expenses from your income.

All in all, this system allows small businesses to pay less than under the General Taxation System.

A common condition for applying the preferential simplified tax rate is that the taxpayer conducts a priority type of activity for the region.

For example, according to the law of the Moscow region dd 12.02.2009 No. 9/2009-OZ «On the rate of tax levied in connection with the use of the STS» for some businessmen who use the STS with the object of taxation «Income minus expenses», a tax rate of 10% is established, provided that companies and sole proprietors carry out certain types of activities.

For example: growing annual and perennial crops, growing seedlings, animal husbandry, mixed agriculture, auxiliary activities in crop production and post-harvest processing of agricultural products, collecting and harvesting wild mushrooms, fruits, berries, nuts, production of medicines and materials used for medical purposes, production of rubber products, glass and glass products, cast iron, steel and ferroalloys, construction metal structures and products, watches, optical devices, photo- and film equipment, general-purpose machinery and equipment, furniture, repair of machinery and equipment, electronic and optical equipment, automobile cargo transport activities, rental of inland water transport vessels for the carriage of passengers with a crew, real estate management for remuneration or on a contractual basis, sports activities.

The condition for applying this preferential rate of 10% is the ratio of revenue, which must be at least 70% of the total amount for the specified types of activities for the tax period.

One more perk for small business is the tax holiday

Sole proprietors applying the STS with the object of taxation «income» from January 1, 2015, have the right to apply the 0 rate, provided that the subjects of the Russian Federation adopted the relevant law.

To take advantage of the benefit, an individual entrepreneur must meet several conditions:

  • business activities must be carried out in the industrial, social, or scientific fields, as well as in the sector of household services;
  • The sole proprietor was registered for the first time with the Federal Tax Service after the relevant law of the Russian Federation’s subject had entered into the force.

Benefits for companies using the patent system of taxation

Individual entrepreneurs use the patent system of taxation along with other taxation regimes in relation to activities stipulated in item 2 of article 346.43 of the Tax Code. For example, in relation to:

  • catering services provided through catering facilities that do not have a customer service hall;
  • slaughtering, transporting, distilling, and grazing services;
  • production of leather and leather goods;
  • production of dairy products;
  • production of bakery and flour confectionery products;
  • services (execution of works) development of computer programs and databases (software and information products of computer technology), their adaptation and modification;
  • repair of computers and communication equipment.

Subjects of the Russian Federation can establish a tax rate of 0% for taxpayers — sole proprietors, registered for the first time after the entry into force of the preferential laws of subjects of the Russian Federation.

At the same time, an individual entrepreneur’s activity should be carried out in a certain area: industrial, scientific, social, and the share of profit received from this activity should be at least 70% of the total income.

Property tax benefits

Small businesses using the Simplified Taxation System and Unified Tax on Imputed Income are recognized as property taxpayers, the tax base for which is determined based on the cadastral value.

In relation to the property tax base for which is determined in accordance with article 375 of the Tax Code as the average annual value (article 375 of the Tax Code), the taxpayer remains exempt from property tax.

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