July 2003

This material is provided through the support of the US Agency for International Development (USAID) and the Department for International Development (DFID) under agreements with the Russian Microfinance Center and Fund "FOR A." This review is for information purposes only. Neither the authors of this review nor the Russian Microfinance Center shall be liable for any damage to any organization's property due to any use of explanations, conclusions and interpretations of effective legislation contained herein.
Author: LEGEM PERFERRE
Edited by: Russian Microfinance Center

RF Tax System

Important changes took place in the Russian tax legislation in July. The Russian President signed into law a number of bills in the tax reform package; they include VAT rate reduction; lifting tax authorities' supervision over private spending; change in deductions on individual income tax.

The issues of lifting sales tax and reforming the Unified Social Tax (UST) and VAT were postponed till after the parliamentary recess.

Also in autumn, the Duma is expected to adopt the Tax Code chapter on corporate property tax.

No new bills were introduced in July due to forthcoming parliamentary recess.

Adopted Normative Legal Acts:

• Federal Law of 7 July 2003 No 117-FZ "On amending Part Two of the RF Tax Code and some other legal acts of the RF, and on the annulment of certain legal acts (legal provisions) of the RF"Published in Rossiiskaya Gazeta of 9 July 2003 No 132.
  Becomes effective on 1 January 2004.
  • VAT Tax rate is lowered from 20% to 18%.
  • Tax rates on excisable goods are changed.
  • There is a change of profit tax rates for the purpose of distributing tax revenues between different levels of the state budget: now 5 percent of profit tax goes to the federal budget, and 17 percent of profit tax goes to the respective regional budget of the RF subject. Previously, the proportion was 6 and 16 percent, respectively.
  • The RF Tax Code is amended pursuant to the repeal of sales tax on 1 January 2004.
• Federal Law of 7 July 2003 No 110-FZ "On amending articles 219 and 220, Part Two of the RF Tax Code"
  Published in Rossiiskaya Gazeta of 9 July 2003 No 132.
  Effective on 10 August 2003.
  • It increases tax-deductible individual income:
    - from 25,000 to 38,000 rubles spent on education or medical treatment;
    - from 600,000 to 1 million rubles spent on housing construction or purchase.
  • The law applies to transactions entered into after 1 January 2003.
• Federal Law of 7 July 2003 No 105-FZ "On amending article 218, Part Two of the RF Tax Code"
  Published in Rossiiskaya Gazeta of 9 July 2003 No 132.
  Effective on 10 August 2003.
  • Under the amendment, any tax agent can provide tax deductions to an individual. Previously, only the employer was entitled to do so.
  • The law applies to transactions entered into after 1 January 2003.
• RF Government Decree of 14 July 2003 No 422 "On amending RF Government Decree of 15 March 1997 No 318"
  Published in Rossiiskaya Gazeta of 22 July 2003 No 145.
  • It introduces a new Instruction on maintaining records of insured individuals for the purposes of mandatory pension insurance.
  • Starting on 1 January 2003, organizations must report to the RF Pension Fund annually, no later than 1 March, on insurance payments accrued and paid on each employee. Previously, reports had to be filed with the Pension Fund every six months.
• " Federal Law of 7 July 2003 No 118-ÔÇ. "On amending the Federal Law on mandatory social insurance of workplace accidents and occupational diseases"
  Published in Rossiiskaya Gazeta of 11 July 2003 No 137.
  • From now on, one-time and monthly insurance payments will be made by the Social Insurance Fund (SIF), rather than by employers.
  • The law sets out additional costs of medical, social, and professional rehabilitation of the individual affected by an insured accident to be covered. The SIF pays for medications, medical supplies and instruments, hired caregivers, and travel to and from the treatment facility.
  • If the insurer delays for more than a month the payment of sick leave caused by the insured accident, such payment will be made by the SIF at the affected individual's written request.
• " RF Government Decree of 9 July 2003 No 415 "On amending the Classification of fixed assets included in amortization groups"
  Published in Rossiiskaya Gazeta of 15 July 2003 No 140
  • The decree amended the Classification of fixed assets included in amortization (depreciation) groups; some fixed assets were transferred between groups, and new items were added. The said Classification is used to calculate fixed assets depreciation for corporate profit tax and accounting purposes.
  • Most changes apply after 1 January 2003.

• RF CB Regulation of 19 June 2003, No 1292-U "On the procedure of filing the application with the Bank of Russia by a non-bank credit organization for the Bank of Russia to make a decision on granting it the status of a bank"
  Published in Vestnik Banka Rossii of 23 July 2003 No 41
  Registered with the RF Ministry of Justice on 15 July 2003 Registration No 4899.
  • A non-bank credit organization wishing to transform into a bank must comply with the requirements set out for licensed credit organizations which expand their operation by acquiring additional banking licenses.
  • The Bank of Russia must consider the application and supporting papers within 90 calendar days of the date the application is filed with a local Central Bank institution.
• The RF CB Letter of 23 July 2003 "On the application of the RF CB Regulation of 21.06.2003 No 1297-U"
  • ¢ Starting on 1 September 2003, credit institutions must follow the said CB RF regulation when legalizing cards with samples of signatures and imprint of the seal for their corporate clients.
  • ¢ To facilitate the transition, both old and new forms of cards may be used between 1 July and 1 September 2003.
• RF CB Regulation of 9 July 2003, No 232-P "On the procedure for establishing loss reserves by credit institutions"
  Becomes effective on 1 March 2004.
  Registered with the RF Ministry of Justice on 24 July 2003 Registration No 4922.
  • New rules are set out regulating loss allowances by credit institutions and the Central Bank supervision of compliance.
  • In establishing their loss percentages, credit institutions must classify their loss allowances based on five risk groups. The regulation establishes a new classification of risk groups and new percentages of loss allowance.

• Federal Law of 7 July 2003 No 104-FZ "On the annulment of legal provisions on monitoring private individuals' expenses for taxation purposes"
  Published in Rossiiskaya Gazeta of 9 July 2003 No 132
  Effective on 10 August 2003.
  • The law repeals the monitoring by tax authorities of private individual's spending. Previously, tax authorities monitored private purchases of real estate, vehicles, securities, art objects, and gold bullions.
• President's Decree of 25 July 2003 No 840 "On the annulment of certain decrees of the RF President"
  The Decree was not officially published.
  • It annuls the previous presidential Decree obligating credit institutions to report to tax authorities any transactions of USD 10,000 and above, or its equivalent in other currencies, entered into by private individuals (including foreigners). Now the only kind of supervision imposed will be pursuant to the legislation against money laundering.
  • Also annulled is the provision of the same Decree establishing administrative liability of legal entities and individual entrepreneurs for violations related to handling cash transactions and using cash registers. Currently, liability for such irregularities is established by articles 15.1 and 15.2 of the RF Code of Administrative Offences.
• Committee of Financial Monitoring (CFM) Order of 16 June 2003 No 73 "On the approval of the Regulation on the CFM supervision of compliance with the RF laws against legalization of proceeds from crime (money-laundering) and against financement of terrorism by organizations which perform transactions with money and other assets in the area of operation where no supervisory bodies exist."
  Published in Rossiiskaya Gazeta of 22 July 2003 No 145
  Registered with the RF Ministry of Justice on 16 July 2003 Registration No 4902.
  • The following organizations and their branches performing transactions with money and other assets in the area of operation where no supervisory bodies exist are subject to supervision by CFM and its regional departments:
    - Leasing companies;
    - Pawn shops;
    - Organizations operating totalizators and bookmaker agencies, as well as sweepstakes, lotteries and other types of gambling for a prize, including electronic games;
  • The Order defines the types and procedures of inspection by the Committee and its departments.
• Order of the RF Committee of Financial Monitoring of 4 June 2003 No 64 "On amending CFM Order of 03.09.2002 No 62"
  Published in Rossiiskaya Gazeta of 9 July 2003 No 133 (Supplement)
  Registered with the RF Ministry of Justice on 26 July 2003 Registration No 4832.
  • It sets out a new procedure of reporting transactions with money and other assets subject to CFM supervision.
  • New reporting forms are provided, together with guidelines on completing them, and reference books on types of supervised transactions and reporting organizations.
• Ministry of Taxes and Levies (MTL) Order of 18 June 2003 No BG-3-09/325 "On keeping records of foreign organizations by tax authorities"
  Published in the supplement to Uchet. Nalogi. Pravo.- Official Documents of 23 July 2003. No 26.
  • The document has important implications for foreign organizations and their offices registered in Russia.
  • It establishes the Procedure for compiling the reference book of Foreign Organization Codes and its use by tax authorities; it also establishes the procedure for issuing new certificates of registration with tax authorities to foreign organizations, to replace former certificates.
  • The following registration certificates formerly issued to foreign organizations must be replaced by new ones:
    - certificate of obtaining registration with tax authorities;
    - certificate of being registered (having a record file) with tax authorities;
    - information letter confirming the registration of real estate and vehicles with tax authorities;
    - information letter confirming the registration of a foreign organization's branch or office with tax authorities.
  • Starting on 1 October 2003, tax authorities will use the above guidelines in establishing and maintaining records of foreign organizations.
  • The following will no longer be valid after 1 January 2005:
    - INN and Foreign Organization Code issued to foreign organizations before 1 October 2003;
    - certificates of obtaining registration with tax authorities issued to foreign organizations before 1 October 2003.
  • Between 1 October 2003 and 31 December 2004, tax authorities are expected to reissue the required papers to replace older ones.
  • According to the approved Procedure, the tax authority should produce a new Certificate and send a letter of notification to the foreign organization.
  • The tax authority delivers the new certificate to a representative of the foreign organization who then signs a receipt. The new document re-issued to the organization must contain the initial registration date. The old papers must be returned to the tax authorities as the new certificate is issued.
  • The old INN becomes invalid on the working day following the issue date of the new registration certificate.