Russia: Radical tax reform in the IT industry

In brief

The Russian President has announced a reduction in corporate profits tax from 20% to 3% and in social security contributions from 14% to 7.6% for Russian IT companies. It is not yet clear whether this preferential tax regime will be available to Russian subsidiaries of foreign companies. In fact, some companies may face an increased tax burden, as current VAT exemptions for software, know- how and patent license fees may be abolished.

These measures drastically change the taxation landscape for Russian and foreign IT companies and software distributors, including foreign vendors of electronic services. Cancellation of the VAT exemption may require revisiting the current software prices. Depending on circumstances, it may be advisable to revise existing contractual structures for the supply of software and related services.


How we can help

We will be pleased to assist our clients by:

  • Assessing the impact of the VAT changes on current supply prices;
  • Identifying effects of the changes for companies qualifying as “foreign vendors of electronic services” for VAT purposes;
  • Analyzing the possibility of revisiting procurement prices in agreements with Russian affiliates and independent partners whose activities fall under the new rules;
  • Assessing business-restructuring opportunities within the framework of the announced preferential tax regime.

In more detail

President Putin has announced the upcoming "tax maneuver" in the IT industry in his address to Russian citizens on 23 June 2020. The new preferential tax regime for Russian IT companies is not intended to have an expiration date.

Simultaneously, we learned that the Russian Ministry of Communications, following a meeting with the Russian President, has proposed the following specific measures to implement the "tax maneuver":

  • To apply the preferential tax regime to entities accredited as IT companies. The current accreditation rules impose no restrictions on foreign ownership in a Russian company applying for accreditation. If these rules remain unchanged, the preferential tax regime may be available, inter alia, to Russian subsidiaries of foreign companies. It is likely that additional criteria for applying this tax regime will be introduced apart from the accreditation requirement – e.g., revenues from IT activities may need to constitute a certain share in the overall company revenues.
  • To abolish the current VAT exemption for software, know-how and patent license fees. This measure may adversely affect the profitability of sales of foreign IT companies in the Russian market. It will have the greatest impact on sales of foreign software to customers that may not recover "input" VAT: individuals and companies with VAT-exempt revenues (e.g., banks, financial and insurance companies). In contrast, Russian suppliers of software and other "technological" intellectual property may benefit from this measure. They will be entitled to “input” VAT recovery that is currently unavailable to them. Moreover, their "export" supplies will not be subject to the Russian VAT.

These proposals may be substantially changed before the new tax regime is enacted into law. We will monitor the legislative developments on these issues.

Click here to access the full alert in Russian.


This legal alert is issued to inform Baker McKenzie clients and other interested parties of legal developments that may affect or otherwise be of interest to them. The comments above do not constitute legal or other advice and should not be regarded as a substitute for specific advice in individual cases.

Copyright © 2022 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.