The government is considering proposals for amending the Tax Code of the Russian Federation, providing for the inclusion of costs for the implementation of domestic software (software), software and hardware complexes (PAC) and computer equipment presented in the unified register of Russian programs, as well as in the unified register of Russian radio-electronic products, investment tax deduction for income tax. This initiative was included in the draft of the second package of measures to support the IT industry, submitted to the profile Deputy Prime Minister Dmitry Chernyshenko.
The introduction of a tax deduction instrument will be enshrined in federal law and will require amendments to the laws of the constituent entities of the Russian Federation, indicated in the draft document, which Vedomosti has read.
This measure is aimed at stimulating import substitution and the purchase of domestic software, PAK and computer equipment, explained the representative of the Ministry of Digital Science.
“The details of the application will be refined, including in terms of the adoption of the relevant regulations at the level of the constituent entities of the Russian Federation, – explained the press service of Chernyshenko. “At the moment, the concept of this event does not indicate restrictions on potential participating companies to which this tax deduction may apply.”
Percentage of the amount of expenses for the purchase of domestic developments, which companies can deduct until it is specified. The general rate of income tax in Russia is 20%. Investment tax deduction is a special tool to reduce the tax burden on income tax, the meaning of which is that the calculated income tax is reduced by the amount of expenses or (most often) a part of expenses. That is, this type of tax deduction does not reduce the tax base for income tax, but the calculated tax itself.
“Considering that the Tax Code does not establish the minimum tax that must be paid to the federal budget, as a result of the application of the investment tax deduction, income tax may not be paid at all if the amount of costs exceeds the amount of income tax,” explains the head of the Permit IT & IP-disputes “of the law firm” Rustam Kurmaev & Partners “Yaroslav Shitsle.
“The investment tax deduction is introduced by the law of the constituent entity of the Russian Federation, which may not introduce a deduction or introduce, but with a number of restrictions, and as a result, the circle of taxpayers and the amount of the deduction may differ greatly from region to region,” explains the director of the tax and legal consulting department of KPMG in Russia and the CIS Ekaterina Burlyand. An investment tax deduction can be a profitable tax planning tool for profitable companies, she says.
Theoretically, if the deduction is greater than the tax, then it can be carried over to the next tax period, but here it is also important to take into account the conditions for its application, which are established by each specific subject of the Russian Federation, Burlyand added.
In this situation, most likely, as for all tax deductions, certain restrictions will apply, i.e., the tax deduction will be provided within a certain predetermined amount, suggests Andrei Sholokhov, Deputy General Director of Softline for work with national projects.
“This is a tax break that stimulates not only government organizations and companies, but also the private sector to buy domestic equipment and software,” says Alexey Smirnov, general director of Bazalt SPO. “Incentives through market development are much more effective than direct government subsidies, and this measure is precisely aimed at expanding the market through tax incentives, including the commercial sector, for the purchase of domestic equipment and software.”
The state already has several tools to support the sale of Russian software and hardware, Sholokhov reminds: “Various subsidies for the purchase of domestic software and hardware have been working for a long time – for example, the Russian government decree No. 1598 on preferential lending to companies, where one of the conditions is, that the cost of purchasing domestic equipment and software in total should be at least 60%. Tax deduction is a more interesting tool than concessional lending, and for some clients it is likely to become a significant motivation when choosing certain decisions. “
As part of the tax maneuver, benefits for developers are already in effect, included in the first package of measures to support the IT industry, adopted in June 2020. For example, insurance premiums for software development companies have been reduced from 14 to 7.6%, and income tax – from 20 to 3%.
Support measures that are being discussed in the second package include, for example, creating conditions for attracting and relocating (returning) IT specialists and companies to Russia, and a ban on planned control and supervisory measures in relation to IT companies.
In 2019, the Russian IT market reached $ 5.57 billion, according to IDC. In different product categories, the balance of power between Russian and foreign products differs significantly, Sholokhov notes: “If we are talking, for example, about antivirus software or character recognition systems, then Russian software has a significant advantage in our country. In Russia, there really are competitive products that have managed to establish themselves not only in the domestic market, but also in the world. Generally speaking, the average market share of Russian software and hardware is about 5% ”.
The share of domestic software products and equipment on the Russian market in the coming years will increase thanks to a number of measures, the most ambitious of which will be the issuance of a presidential decree on the transition of critical information infrastructure facilities (these are government agencies, communication networks, transport, banks, etc.) use of domestic software and equipment. The draft of this decree was published on regulation.gov.ru in January this year. It defines the deadline for the transition to domestic software – until January 1, 2023 – and to Russian equipment – until January 1, 2024.
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