Key changes
Russia is about to adopt a new corporate “windfall” tax effective 2024.1 This tax would have a one-off nature and would be levied only on major businesses.Simultaneously, a general concept of “one-off taxes” would appear in the Russian tax legislation.2 This would enable adoption of such taxes” in future.
Taxation procedure
Based on the currently available versions of the draft laws, the taxation procedure would be as follows:1. The windfall tax is aimed at large companies. Companies would be required to pay this tax if their average profit earned in calendar years 2021 and 2022 exceeds RUB 1 billion.
2. The windfall tax would be payable by all Russian companies and Russian permanent establishments of foreign companies established before January 1, 2021, subject to meeting the above profitability threshold. Equal rules would apply to all taxpayers, irrespective of their current active or dormant status and foreign participation in their capital.
3. Some categories of companies are relieved from the windfall tax. This concerns small and medium-sized businesses, payers of the unified agricultural tax,3 as well as some companies in the mineral resources industry4 and owners of certain such companies with an ownership share of not less than 75%. Also, special rules are established for companies that were members of a consolidated group of taxpayers in 2022.
4. The taxable profit would be determined as a difference between the following figures:
• average profit earned by the taxpayer in calendar years 2021 and 2022 (i.e., (profit 2021 + profit 2022) / 2), and
• average profit earned by the taxpayer in calendar years 2018 and 2019 (i.e., (profit 2018 + profit 2019) / 2).
5. “Profit” would be determined as the sum of all types of taxable profit of the relevant taxpayer for the year concerned. At the same time, the “profit” would not include several categories of income, such as dividend income, income from controlled foreign companies, certain types of income from investment projects implemented under agreements on promotion and protection of capital investments5 and special investment contracts6, as well as some other types of income.
6. The taxable profit would be deemed equal to zero in the following cases:
• the difference between the average profit earned in 2021-2022 and in 2018-2019 is zero or has a negative value; or
• the average profit earned by the taxpayer in calendar years 2021 and 2022 does not exceed RUB 1 billion.
7. The relevant tax return would have to be filed by January 25, 2024. The windfall tax would become payable at the rate of 10% by January 28, 2024. However, if taxpayers on a voluntary basis make a “security payment” of this tax in October – November 2023, they could then reduce the windfall tax by the amount of the “security payment”. The amount of the “security payment” should not exceed 50% of the windfall tax amount. As we understand, the legislator intends to grant taxpayers the right to reduce the effective windfall tax rate to 5% if they pay the maximum possible “security payment” amount.
8. The windfall tax will be payable on a one-time basis. As of now, it is not expected to have a recurring nature.
How we can help
Given the possible prompt adoption of the draft laws, we recommend considering the following actions now:• assess the applicability of the windfall tax and the possibility of making a “security payment” in autumn 2023;
• determine the types and amount of income to be excluded from the tax base;
• calculate the tax base and the amount of windfall tax potentially payable;
• monitor the adoption of the draft laws in order to be aware of the relevant tax implications in good time.
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1. https://sozd.duma.gov.ru/bill/379177-8
2. https://sozd.duma.gov.ru/bill/379248-8
3. The relief is available to companies that applied the unified agricultural tax on an uninterrupted basis since January 1, 2018 till December 31, 2022.
4. These include, in particular: (1) companies that extracted in 2022 hydrocarbons or coal on plots assigned to them in accordance with the Russian legislation, (2) companies engaged in raw oil processing subject to several additional conditions, and (3) producers of liquefied natural gas that made at least one export supply in 2022.
5. Agreements on promotion and protection of capital investments, concluded under Federal Law No. 69-FZ, dated April 1, 2020
6. Special investment contracts, concluded under Federal Law No. 488-FZ, dated December 31, 2014
Sergey Zhestkov, Partner, Moscow
Arseny Seidov, Partner, Moscow
Kirill Vikulov, Partner, Moscow
Maxim Kalinin, Partner, St. Petersburg
