December 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

Due to the fact that the former Duma's powers expired, lawmaking in the last month was limited to the endorsement by the Federation Council and by the President of the bills already adopted by the Duma, as well as a discussion of lawmaking initiatives planned for 2004. In particular, the President signed Federal Law No 163-FZ amending the Russian Tax Code provisions on VAT, individual income tax, and profit tax. Some of the amendments (those related to individual income tax and VAT) may affect MFIs.

On 25 October, the Government met to discuss lawmaking for the coming year. The following, in particular, is planned in the sphere of tax legislation:
- in April 2004, to introduce in the Duma the bills on VAT accounts and amendments to Article 25 of the Tax Code;
- to adopt a new chapter of the Tax Code on Individual Income Tax, etc.

In addition, the Ministry of Taxes issued a number of orders establishing new forms of tax reporting on
- securities operations tax;
- corporate profit tax;
- VAT;
- individual income tax.

MFIs will be required to use the new individual income tax reporting form and the new corporate profit tax reporting form.

Adopted Normative Legal Acts

• Federal Law of 8 December 2003 No 163-FZ "On amending certain legal acts on taxes and levies in the Russian Federation"
  Published in Rossiiskaya Gazeta of 16 December 2003 No 252.
  • The law repeals profit tax breaks which used to be provided to investors by regional and local authorities since 1 June 2001. The Government explained this measure saying that major oil companies used these benefits to avoid paying taxes. However, the repeal of profit tax benefits will affect good faith investors in the first place.
  • Individual income tax: on 1 January 2004, the tax-deductible amount of voluntary contributions to retirement accounts is increased from RUR 2000 to 5000 per year. So the organizations will only accrue taxes on the portion of voluntary (non-state) pension insurance payments which exceeds RUR 5000 per year per employee.
  • VAT; the law toughens the procedure of the accrual and payment of VAT related to the payment of profits to foreign organizations which are not registered with Russian tax authorities.
• Federal Law of 23 December 2003 No 178-FZ "On amending articles 251 and 291 of the RF Tax Code"
  Published in Rossiiskaya Gazeta of 27 December 2003 No 261.
  • It is established that the amounts of insurance payments made by banks in accordance with the federal law on deposit insurance should be reported as expenses related to their banking activity.
• The MTL Order of 11 November 2003 No BG-3-02/614 "On the approval of the form of corporate profit tax declaration"
  Registered with the RF Ministry of Justice on 4 December 2003 Registration No 5294.
  Published in Rossiiskaya Gazeta of 25 December 2003 No 259.
  • The order establishes a new corporate profit tax reporting form. This form is to be used by Russian corporate taxpayers.
  • As compared to the previous form, some positions containing reference information have been dropped, as well as some pages, in particular those concerning transitional period tax base.
  • There is no instruction on how to fill the new reporting form.
• The MTL Order of 20 November 2003 No BG-3-03/644 "On the approval of the VAT reporting form"Registered with the RF Ministry of Justice on 11 December 2003 Registration No 5327.
  Published in Rossiiskaya Gazeta of 25 December 2003 No 259.
  Will become effective in the taxation period of the first quarter of 2004.
  
  • The order establishes a new VAT reporting form and a new 0% VAT reporting form.
  • Two new sections are added to the reporting form which cover the amount of tax to be paid to the state budget; the two sections should be filled by the taxpayer and the tax agent, respectively.
• The Ministry of Taxes and Levies (MTL) Order of 31 October 2003 No BG-3-04/583 "On the approval of the individual income tax reporting form"
  Registered with the RF Ministry of Justice on 5 December 2003 Registration No 5296.
  Published in Rossiiskaya Gazeta of 24 December 2003 No 258.
  • The order establishes new individual income tax reporting forms and provides guidelines for filling them:
  - Form No 1-NDFL "2003 individual income and income tax reporting card"
  - Form No 2-NDFL "2003 individual income report".
  
  • There are only some minor changes as compared to the current reporting forms - for example, only one amendment is made to Form 2-NDFL, namely: now the organization should indicate OKATO code in individual income reports.

• Federal Law of 23 December 2003 No 177-FZ "On insuring deposits by private individuals with Russian banks"
  Published in Rossiiskaya Gazeta of 27 December 2003 No 261.
  • The deposit insurance system is based on the following principles:
  - all banks which capture individual deposits are required to participate;
  - the insurance fund is built through regular contributions by banks - members of the system.
  
  • The Deposit Insurance Agency is responsible for insuring individual deposits.
  • There are no insurance contracts.
  • Either of the following events entitle individual depositors to compensation:
  - a bank's license being withdrawn by the Bank of Russia;
  - the Bank of Russia establishing a moratorium on the payment of creditors' claims.
  
  • A private depositor is entitled to full compensation if the sum total of his/her accounts is up to RUR 100,000. Where a depositor has more than one account in one bank, and their sum total exceeds RUR 100,000, the amount of compensation is shared proportionally among the accounts. Where a depositor has accounts in more than one bank, the insurance payment will be accrued with regard to each bank separately.
• Federal Law of 23 December 2003 No 181- FZ "On amending the Federal Law on banks and banking" Published in Rossiiskaya Gazeta of 27 December 2003 No 261.
  
  • To be able to capture individual deposits, a credit institution must not only obtain a license from the Central Bank, but it should also participate in the mandatory deposit insurance system and register with the Deposit Insurance Agency.
• The RF CB Regulation of 1 December 2003 No 1346-U on the required minimum equity capital for newly established credit institutions, on the amount of assets (equity) for existing credit institutions wishing to establish branches and/or affiliates in a foreign state, and on the required amount of assets (equity) for non-bank credit institutions which apply for the status of a bank.
  Registered with the Ministry of Justice on 23 December 2003 Registration No 5355.
  • The Regulation establishes the required minimum equity capital for newly established credit institutions and the required amount of equity assets for non-bank credit institutions which apply for the status of a bank.
  • All newly established banks, regardless of their share of foreign capital, are required to have a minimum equity capital of 5 million Euro.
  • The required minimum equity for non-bank credit institutions is 500,000 Euro.
  • Non-bank credit institutions applying for the status of a bank are required to have a minimum equity which is equivalent to 5 million Euro.
• The RF CB Instruction of 1 December 2003 No 108-I on the organization of inspections by the Central Bank of the Russian Federation (the Bank of Russia)
  Published in Vestnik Banka Rossii of 9 December 2003 No 67.
  Effective 10 days after the official publication.
  • The Instruction establishes procedures of inspections carried out by the Bank of Russia authorized inspectors and defines specifically the rules for carrying out inspections of compliance with required reserves, with currency legislation, and with the legislation against 'money-laundering' and the funding of terrorism.

• Federal Law of 8 December 2003 No 167-FZ "On 2004 tariffs of mandatory social insurance of workplace accidents and occupational diseases"
  Published in Rossiiskaya Gazeta of 16 December 2003 No 252.
  • In 2004, the same tariffs and procedures apply as established by Federal Law No 17-FZ on 12 February 2001.
• Federal Law of 8 December 2003 No 166-FZ "On the budget of the Russian Social Insurance Fund in 2004"
  Published in Rossiiskaya Gazeta of 17 December 2003 No 253.
  Effective on 1 January 2004.
  • Starting on 1 January 2004, sick leave and maternity leave payments must be based on the employee's average salary in her/his main place of work over the 12 month preceding the month of the issue of the sick leave or maternity leave certificate.
  • If an employee has worked for less than three months in the 12 months prior to the sick leave/maternity leave, the amount of the sick leave/maternity leave benefit will be equal to the official minimum wage.
  • The minimum and maximum benefits remain at RUR 11,700 and 1 minimum wage, respectively.
• Regulation of the Russian Social Insurance Fund of 4 December 2003 No 134 "On the approval of Guidelines concerning the procedure of ordering and implementation of field inspections of insurers' compliance with mandatory social insurance for workplace accidents and professional diseases, and on measures to be taken based on their findings."
  Registered with the RF Ministry of Justice on 16 December 2003. Registration No 5331.
  • The inspections are carried out following a quarterly schedule approved by the head of the local Fund office.
  • The inspection is limited to the three calendar year of the organization's operation preceding the year of the inspection. The duration of the inspection cannot exceed two months.
• " The RF Ministry of Finances Order of 22 December 2003 No 117n "On workbooks"Registered with the RF Ministry of Justice on 24 December 2003 Registration No 5356.
  • The order establishes the formats of the workbook and its loose pages, and the procedure of supplying employers with blank workbook forms.

• Federal Law of 10 December 2003 No 173-FZ "On currency regulation and control." Published in Rossiiskaya Gazeta of 17 December 2003 No 253.
  Effective on 17 June 2004.
  • The law defines such notions as foreign currency, Russian currency, resident, non-resident, authorized bank, currency valuables, and currency operations. Currency valuables (or currency securities) include foreign currency and external securities, but they do not include precious metals and natural precious stones. Currency operations are defined as activities undertaken in order to meet or otherwise terminate obligations involving currency valuables or using such valuables as a means of payment, as well as other cases involving a transfer of the right of ownership.
  • The bodies responsible for currency supervision in the RF are the Central Bank and a federal executive agency authorized by the RF Government.
  • The rules of foreign currency export have not changed.
  • According to the new version of the law, no restrictions will be imposed on operations with foreign currency, except cases expressly mentioned in the law. The Government and the Central Bank may impose the following restrictions on a limited number of currency operations:
    - a requirement to use a separate bank account;
    - a requirement to create reserves.
    
    In particular, a resident may be required by the Central Bank to use a separate bank account for the following currency operations:
    - settlements and transfers involved in lending foreign currency by residents to non-residents;
    - settlements and transfers involved in borrowing foreign currency by residents from non-residents.
  On 1 January 2007, most current restrictions will be lifted.
• Federal Law of 8 December 2003 No 162-FZ "On amending the RF Criminal Code"
  Published in Rossiiskaya Gazeta of 16 December 2003 No 252.
  • The law amends the Criminal Code Articles 198 and 199 on tax-related offences:
    - it establishes a closed list of offences giving rise to criminal liability (formerly, there was an open list of actions regarded as tax evasion);
    - it reduces maximum prison sentences for such offences;
    - penalties are expressed in absolute amounts (formerly, they were relative to the minimum wage), and increased significantly;
    - the law establishes new criteria for defining a tax offence as 'large' and 'very large' for purposes of criminal liability; they are also expressed in absolute amounts and increased significantly.
  • New taxation-related articles are added to the Criminal Code, namely:
    - Article 199.1 "Failure to comply with the obligations of a tax agent";
    - Article 199.2 "Non-disclosure of money or property of an organization or individual entrepreneur, which is subject to taxation and/or payment of duties."