Tax exemptions, patents and dialogue with authorities: How Moscow supports businesses

Tax exemptions, patents and dialogue with authorities: How Moscow supports businesses
Moscow was ranked first in a ranking for the best tax policy among Russian regions by PricewaterhouseCoopers (PwC). For the number of business-related reforms, Moscow is in the world’s top five. The city has also moved from 62nd to 51st place in the 2016 Doing Business ranking for business regulations. Moscow’s business climate is improving thanks to tax exemptions, and financial and property support from the City Government. Mos.ru presents this extensive report on the incentives that businesses received from the city in 2016.

There are several programmes to support businesses in Moscow, including tax exemptions, reduced leasing fees and real estate prices, and subsidies. They are available to industrial enterprises, technology parks and their residents, and hotel owners.

Individual entrepreneurs are entitled to two-year tax breaks if they have registered for the first time and chose simplified taxation or patent taxation. The number of individual entrepreneurs in Moscow now exceeds 250,000. Moreover, one in every seven Russian individual entrepreneurs works in Moscow, making the city the leading region.

In addition to financial and property support, the programme provides consultation services. Business people can get advice from the Business Support Headquarters, the Small Business of Moscow public organisation, the Moscow Agency of Innovations and the Moscow Convention and Exhibition Bureau. The city has also developed a special programme to reduce administrative barriers and develop businesses.

 

Patent taxation

Ninety-eight percent of Moscow individual entrepreneurs are using patent and simplified taxation system. Over the nine months of 2016, individual entrepreneurs have bought 50,000 patents, which is 60 percent more than over the same period in 2015. Most often, the patents were bought by those working in consumer services, public catering and retail.

 

The patent system is available not only to newcomers, but also to those who have been an individual entrepreneur for some time. The system exempts taxpayers from paying individual income tax, individual property tax, VAT and sales tax. Moreover, entrepreneurs do not have to file a tax declaration, hire an accountant or use cash-register equipment. Keeping revenue records is sufficient.

The system is available for 80 types of business activity and entrepreneurs who have up to 15 employees. The types of activity include retail, passenger and freight transportation, car repair, residential letting, babysitting, tutoring and other consumer services. Since 1 January 2016, the list includes software development, computer repair, leather production, dairy production and some others. Starting next year, a vending sales patent will become available.

The cost of patents in Moscow is also being adjusted. For example, patents have become cheaper for lessors of small residential spaces up to 75 square metres. Patents for freight transportation in vehicles with a capacity of over 10 tonnes are also cheaper. A non-residential letting patent fee is changing based on the city area, similar to residential letting patents. The patent application procedure for self-employed taxi drivers has been simplified. Their patents are now not bound to a particular vehicle, which allows them to use several cars.

Patent applicants can pay in installments if applying for a term of at least six months. They must pay one-third of the fee within 90 days of the patent's effective date, and pay the outstanding amount before the expiration.

Over 8,600 retail facilities in Moscow are exempt from the sales tax that was imposed on 1 July 2015. This is a fixed compulsory levy on an individual retail facility. The amount of sales tax depends on the type of activity, and its facility characteristics and location.

 

The sales tax is paid every quarter. It does not increase the burden on businesses, as tax payers can deduct the amount of the sales tax from their income tax or the tax payable under the simplified taxation system. A list of entrepreneurs who have not submitted a notification of sales taxpayer registration or who submitted incorrect data is published on the website of the Moscow Department for Economic Policy and Development. Entrepreneurs can appeal the blacklisting with the City Government within 20 days of the publication on two grounds: if the trading facility is not used for commercial activity; or if the business person is exempt from sales tax, for example, if he or she is subject to patent taxation.

Sales tax exemptions extend to planetariums and circuses, vendors and entrepreneurs operating at cinemas, theatres and museums; religious organisations, street market and retail market traders, and agricultural produce business owners; individual entrepreneurs using patents; and individuals involved in consumer and personal services that include sales. Travelling vendors (solicitors), release of goods from a warehouse, non-stationary press trading facilities and vending machines are also exempt from the sales tax.

Starting 1 January 2017, booksellers will also be exempt from the sales tax if the display area for books and print publications is at least 60 percent of the entire retail facility. The share of revenue from books, newspapers and magazines in the total revenue from the beginning of a calendar year must be at least 60 percent by the end of a tax period. It is expected that the exemptions will be used by over 200 points of sale.

Land tax

New land tax incentives have been approved this year for sites where sport facilities with a football field or ice rink for at least 12,000 spectators are being built or renovated. The incentive will also be applied to sites where such facilities were built or renovated after 1 January 2014. The tax on such sites amounts to 20 percent of the calculated tax in 2014–2017, 27 percent in 2018, 34 percent in 2019, and 50 percent in 2020–2023.

The city has also decided to apply this incentive to land used for industrial and investment facilities that are party to special investment contracts signed with a Moscow government agency. More information on the calculation of land tax and payment schedules is available on the site of the Moscow Department for Economic Policy and Development.

 

Corporate property tax

From this year, companies pay 10 percent of tax for the use of buildings and premises for medical purposes that were built or renovated after 1 January 2013. This incentive is available from 1 January 2015 to 1 January 2025. It does not apply to buildings the tax on which is calculated based on their cadastral value.

Since April 2016, companies do not pay taxes for residential buildings and premises that are not registered as fixed assets. This incentive is applied to residential buildings and premises acquired or held in economic management under a life estate agreement or an ownership transfer agreement due to the previous owners’ resettlement to social housing. The tax has been lifted from railway companies’ movable and immovable property used for passenger transportation on the Moscow Central Ring.

This incentive also applies to agricultural clusters, which will pay 25 percent of the calculated tax in 2016 and 2017, 35 percent in 2018, 45 percent in 2019 and 50 percent in 2020–2025.

Profit tax

The profit tax has been reduced for certain groups of companies, from 13.5 percent to 12.5 percent from 2017–2021, including automobile manufacturing and oil companies, companies created by people with disabilities and companies that employ disabled persons, as well as resident companies of the Zelenograd Special Economic Zone, the management companies of technology and industry parks and their anchor residents.

Moscow’s innovative companies also enjoy other incentives. For example, technology parks are issued subsidies of up to 100 million roubles, and technopolis facilities receive three times more. They pay zero property tax, 0.7 percent of the calculated land tax and 0.01 percent of lease payments for land calculated based on its cadastral value.

Incentives are available not only to existing companies but also to those under construction, such as new investment projects. Their investors are also eligible for other support measures in the startup period, which includes the design, construction and technical retooling stages. The status of investment project is assigned to projects designed to create an industrial complex, a technology or industry park, projects designed to create, renovate and/or launch industrial production with at least 750 million roubles of investment within up to three years, as well as projects under concession agreements and public-private partnership agreements.