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Law on tax relief for Russian IT companies comes into force on January 1

The tax maneuver envisions a reduction of the rate of insurance premiums for the industry from 14% to 7.6%, and of the income tax rate - from 20% to 3%

MOSCOW, January 1. /TASS/. The law enabling Russian IT companies - software developers to enjoy tax relief comes into force on Friday, January 1. Particularly, it lowers the rates of insurance premiums for the industry and income tax rates.

A respective bill was signed by Russian President Vladimir Putin into law in late July. The tax maneuver envisions a reduction starting January 1, 2021 of the rate of insurance premiums for the industry from 14% to 7.6%, and of the income tax rate - from 20% to 3%.

The reduced taxation rate is only applicable to software developers and does not apply in respect of distributors and companies, whose revenue from production of respective products will be less than 90% in the total revenue structure. IT companies have to obtain state accreditation from the Russian Ministry of Digital Development, Communications and Mass Media to apply for the tax relief.

Since plans to introduce the tax relief for Russia’s IT sector were announced the demand of such companies for accreditation by the Ministry of Digital Development, Communications and Mass Media has soared. For example, the number of state accreditation applications climbed seven-fold as 646 applications were received by the ministry from June 24 to August 10, and 94 applications were received in the same period before June 23, Deputy Minister Maksim Parshin said earlier.

Companies requested supplementary explanations

Meanwhile, the Information & Computer Technologies Industry Association (APKIT) applied to the Finance Ministry in late December asking to explain the use of the tax maneuver, Kommersant daily reported earlier with reference to a copy of the letter. According to the association, the tax maneuver policies are not spelled out unequivocally, for example, which revenue should be considered as that from IT activities and whether the maneuver is applicable to companies using subcontractors.

Right afterwards the Finance Ministry together with the Ministry of Digital Development, Communications and Mass Media and the Federal Tax Service provided an official interpretation on the tax relief use. The document described the order of using the relief on profit tax, on social contributions and value-added tax for companies developing programs for electronic document flow, websites creation, customer relationship management (CRM), analysis and check of contractors. Moreover, the document provided examples of situations demonstrating the mechanism of the tax maneuver.

APKIT Director, Chairman of the IT and Digital Economy Council at the Trade Chamber of Russia Nikolay Komlev told TASS that the document with explanations turned out useful, though it covers only part of questions that the association asked. Particularly, he mentioned as an example the fact that a variety of situations of the transition period remained undescribed, a methodology for proving the term ‘proprietary solution’ was not fully explored. Questions asked by companies with a complicated structure also remained unanswered, Komlev added.

Second wave of aid

Overall, the policies are fine for developers, whereas the relief is really meaningful, APKIT Director suggests, adding though that certain terms are imperfect. However, the IT industry does not consist solely of developers, Komlev stressed. "There are distributors, system integrators, internet companies and many others, and all want support policies," he added.

For example, integrators need less relief or cash, but more - reduction of the pressure on business from the side of law enforcement bodies, adjustment of legislation on government contracts, promotion of competition in the field of government contracts, "to make sure that not only state corporations implement projects." "Regional IT businesses need support as well since they are in a particular difficult situation. State funds flow from regions to federal executors of contracts. Regional IT business does not receive the digital economy funds either," Komlev noted.

APKIT has got proposals on all those areas that do not require additional budget expenditures, he said. "We hope very much that even part of our initiatives will be included in the second package of measures to support IT businesses," Komlev added.

Russian Deputy Prime Minister Dmitry Chernyshenko said earlier that the second package of measures to support the IT industry is under consideration by the government. It may particularly include policies to support large internet companies, developers of games, social media and streaming service providers.