New Changes to the Russian Tax Code under the 2025 Tax Reform: What Everyone Needs to Know?

On July 10, 2024, a new Federal Law amending the Russian Tax Code was adopted. This law introduces significant changes to the personal income tax (hereinafter – PIT), which will now depend on the amount and type of income. The adopted law also includes several other important changes, discussed below.

This article covers the following points:

1. PIT
2. Changes in the procedure for taxation of certain types of income
3. Taxation of income from the sale of shares and securities
4. Sale of real estate and the procedure for determining the holding period of the property
5. Fixed income of controlled foreign companies (CFC)
6. Corporate income tax
7. Simplified taxation system (USN)
8. Amnesty for “business splitting”

PIT

The legislator introduced a five-stage progressive PIT rate scale, which will apply only to the portion of income exceeding established limits:

• 13% for income up to 2.4 million rubles per year;
• 15% for part of income in the range of 2.4-5 million rubles per year (312 thousand rubles plus 15% of the amount exceeding 2.4 million rubles);
• 18% for a part of income in the range of 5-20 million rubles per year (702 thousand rubles plus 18% of the amount exceeding 5 million rubles);
• 20% for part of income in the range of 20-50 million rubles per year (3,402 million rubles plus 20% of the amount exceeding 20 million rubles);
• 22% for income over 50 million rubles per year (9,402 million rubles plus 22% on the amount exceeding 50 million rubles).

Changes in the procedure for taxation of certain types of income

For tax residents:

A separate category of «investment income» will be subject to a two-tier rate – 13% (for income up to 2.4 million rubles) and 15% (for income over 2.4 million rubles) without subsequent progression. This applies to:

• Income from the sale and gifting of property (except securities), including real estate and/or shares in such property;
• Income in the form of insurance and pension benefits;
• Dividend income;
• Income from operations with digital financial assets (DFA), securities, and derivative financial instruments;
• Income received from periodic payments on units of a PIF (there are no limitations by type of PIF). At the same time, transactions which are carried out within a unit investment fund are, as before, not subject to personal income tax;
• Income from REPO transactions and securities borrowing;
• Income from the sale of Russian LLC shares (OOO), securities, bonds, and investment units (for the portion of income exceeding 50 million rubles);
• Income in the form of interest on deposits in Russian banks.

However, there are exceptions where a progressive scale of 13-22% will apply:

• Income in the form of interest on deposits in foreign banks.

Another legislative initiative involves the introduction of PIT on material benefits from the purchase of OOO shares. This means that taxable income will now be deemed to be the difference between the market value of acquired shares and the actual expenses incurred for their purchase, similar to the existing material benefit on securities purchases. The market value of such shares will be calculated in proportion to the part of the net asset value of the OOO as of the last reporting date. A progressive rate of 13-22% will be applied to such income.

Salary bonuses for workers in the Far North regions and equivalent localities are exempt from the increased PIT. The old rates will apply to such income: 13% for income up to 5 million rubles and 650 thousand rubles plus 15% tax on the amount exceeding 5 million rubles.

For tax non-residents:

According to general rules, non-residents pay PIT at a rate of 30% on income received from Russian sources. Income received from foreign sources is not subject to taxation in Russia but may be subject to taxation in the individual’s country of residence.

For Russian citizens who have gone abroad but work remotely for Russian companies under civil-law contracts, an exception will apply: PIT will be calculated at progressive rates of 13-22% similar to Russian tax residents.

Non-residents will pay tax on income from Russian deposits at a rate of 15%, regardless of the size of the tax base.

The tax rate on income in the form of dividends from Russian companies and payments not related to the redemption of digital financial assets for non-residents is also set at 15%.

Taxation of income from the sale of shares and securities

Non-residents will lose the tax exemption when selling OOO shares if they have owned these shares for more than 5 years, as well as when selling securities, bonds of Russian companies and investment shares of high-tech companies if they have owned these assets for more than 1 year.

Conversely, residents will not have to pay tax on such transactions if their income does not exceed 50 million rubles. Income exceeding this amount will be taxed at rates of 13% and 15%.

Please note that the adopted version of the bill does not currently clarify whether exempt income (up to 50 million rubles) will be considered for determining the PIT rate when taxing income from the sale of property exceeding the limit. The procedure for calculating applicable property deductions for the amount of income that exceeds the threshold is also unclear.

Sale of real estate and the procedure for determining the holding period of the property

An important change in the taxation rules for the sale of real estate is that regional authorities, for the calculation of PIT, will be able to set an increasing coefficient of up to 100% of the cadastral value. To prevent the understatement of taxable income when selling real estate, the legislator can now make changes and set the coefficient above 70% (the coefficient applied before the changes take effect on January 1, 2025) up to 100%. For example, when selling real estate for 500 thousand rubles with a cadastral value of 1 million rubles, PIT will be calculated based on 100% of the cadastral value — 1 million rubles.

The amendments also affect the procedure for determining the period of ownership of real estate to apply the tax exemption. When selling residential premises formed as a result of partition, redevelopment, or reconstruction, the period of ownership of these new objects includes the period of ownership of the original object. If the residential premises were formed by a merger, the period of possession is counted from the date of acquisition of the last of the merged objects.

Fixed income of controlled foreign companies (CFC)

The specifics of the tax calculation on the fixed profits of CFCs have changed. Starting from the 2025 tax period, the tax on CFCs’ fixed profit will be calculated based on the number of CFCs and taxed at a progressive scale (13-22%). For owners of up to four CFCs, PIT will amount to 5 million rubles for each company. For five or more CFCs, the fixed amount is 25 million rubles for all companies combined. The amount of fixed taxable income will be:

• For one CFC – 27,990,000 rubles;
• For two CFCs – 52,718,000 rubles;
• For three or four CFCs – 22,727,300 rubles for each CFC, starting from the third;
• For five or more CFCs – 120,899,900 rubles (for all companies).

We remind you that in the event of a legislative change in the CFC taxation regime resulting in a tax increase, taxpayers have the right to submit to the tax authorities a notice of refusal to apply the tax payment on a CFC’s fixed income regime by December 31 of the year preceding the year from which the changes apply, and switch to the ordinary tax payment regime. The deadline for submitting such a notification is December 31, 2024.

Amendments were also made regarding the failure to provide the tax authority with information required to exercise tax control over a CFC. The Tax Code now includes a clause exempting controlling persons of foreign companies from fines for failing to submit CFC financial statements for the years 2022-2024 within the deadline, provided the controlled entities are subject to foreign restrictions (sanctions) and are permanently located in an “unfriendly” state.

Corporate income tax

The income tax rate will increase from 20% to 25% starting in 2025. Personal Funds’ tax rate will also be fixed at 25%. However, the preferential income tax rate for Personal Funds will remain at 15%. For this preferential rate to apply, more than 90% of the fund’s income for the accounting period must be “passive income,” such as dividends, income from the sale of shares, property, and securities.

For accredited IT companies, the tax rate will be 5% until 2030, while the VAT rate will remain unchanged. Additionally, regions will have the right to introduce reduced profit tax rates for the local budget until 2030 and to remove restrictions on the types of R&D for which an increasing coefficient is applied.

Simplified taxation system (USN)

The maximum number of employees for which a taxpayer may apply the USN regime is increased from 100 to 130 persons. The income threshold is increased from 250 million to 450 million rubles.

Organizations and individual entrepreneurs with income exceeding 60 million rubles in the previous year will be recognized as VAT payers. However, USN taxpayers with income up to 60 million rubles are exempt from VAT.

Organizations and individual entrepreneurs applying USN can use reduced VAT rates:

• 5% (for revenue up to 250 million rubles) – without the right to apply tax deductions;
• 7% (for revenue up to 450 million rubles) – without the right to apply tax deductions.

Standard VAT rates (0%, 10%, 20%) are applied for revenues over 450 million rubles with the possibility to apply tax deductions.

Amnesty for “business splitting”

The law defines “business splitting” as “the division of a single entrepreneurial activity between several formally independent entities (organizations, individual entrepreneurs), controlled by the same persons, aimed exclusively or predominantly at understating tax amounts by applying special tax regimes beyond the limits of the exercise of rights to calculate the tax base and/or the amount of taxes.”.

The amnesty will apply to organizations and individual entrepreneurs who voluntarily abandon split schemes and start working transparently. Companies must cease using business splitting schemes in 2025-2026.

The provided tax amnesty will exempt such companies from liability for violations committed between 2022 and 2024. This means that, subject to voluntary abandonment of the split schemes in respect of 2025 and 2026, companies will not be subject to tax audits and penalties for previous periods.

If no on-site tax audit for the years 2025-2026 is scheduled, the obligation to pay taxes, interest, and penalties will cease as of January 1, 2030.

Please note: The current version of the law does not contain clear guidelines or reservations in some provisions. Therefore, additional clarifications from the Federal Tax Service or the Ministry of Finance of the Russian Federation should be expected for the correct application of such provisions. Until such clarifications are issued, the interpretation of these aspects of the law may vary.