russia2

COVID-19 Countermeasures in Russia

Summary

Area 
Title
Description
Labour law
Social security payments
Personnel-related insurance contributions for small and medium-sized enterprises have been reduced by nearly 50% for the period from 1 April to 31 December 2020
Tax
Deadlines extensions
Deadlines for a number of taxes have been extended
Tax deferment
For a number of industries tax deferment up to 6 months
Other measures
Loan deferment
In some cases loans can be deferred by 6 months
Rent Holiday
An opportunity to obtain a deferment when renting federal property
Bankruptcy During the Moratorium Period
A six-month ban has been introduced for creditors on filing bankruptcy petitions for some subjects

Tax provisions

1. Mandatory payments deferrals

For small and medium-sized enterprises which are included in the list of companies operating in the most affected economic sectors as of 1 March 2020 (the list has been issued by the Government), a number of mandatory payments have been deferred.

Nine-month deferment is effective for:

  • taxes (except for VAT, mineral extraction tax and taxes remitted by companies and individual entrepreneurs as tax agents) and advance payments thereon for March and the first quarter of 2020;
  • insurance contributions for the period from March to May 2020;

Six-month deferment is effective for:

  • income tax for 2019;
  • single tax for 2019 under the simplified tax system;
  • single agricultural tax for 2019;

Four-month deferment is effective for:

  • taxes (except for VAT, mineral extraction tax and taxes remitted by companies and individual entrepreneurs as tax agents) and advance payments thereon for April through June, the second quarter and the first half of 2020;
  • tax under the patent taxation system payable in the second quarter of 2020.

Three-month deferment is effective for:

  • personal income tax for individual entrepreneurs for 2019.

Moreover, the deadlines for making advance payments regarding transport tax, corporate property tax and land tax have been extended as follows:

  • for the first quarter of 2020, no later than 30 December 2020;
  • for the second quarter of 2020, no later than 30 December 2020.

Please note that whether a company belongs to one of the most affected economic sectors is determined based on company’s principal activity as registered in the Unified State Register of Legal Entities and the Unified State Register of Individual Entrepreneurs as of 1 March 2020.

A deferment of taxes (or advance payment of taxes) does not entail a deferment for submitting tax returns and calculations.

The Government of the Russian Federation has resolved to extend tax returns and calculations deadlines for all organizations (Decree of the Government of the Russian Federation No. 409 dated 2 April 2020).

Now, companies can file their tax returns, which had to be submitted in March-May 2020, three months later. These include:

  • tax returns (excluding VAT reporting);
  • tax calculation statements on the amounts of income paid to foreign organizations and taxes withheld;
  • 6-NDFL statements (personal income tax);
  • advance tax payments.

In addition, the deadline for filing VAT returns and insurance contributions calculation statement for the first quarter of 2020 has been extended until 15 May 2020.

These amendments do not entail a deferment of taxes (advance tax payments), including when, in accordance with the Tax Code of the Russian Federation, the payment deadline for taxes (advance tax payments) is set to be no later than the filing date of tax returns (calculations).

 

2. Other accounting and taxation changes

Beginning on 1 April, at the request of an entity subject to asset freezing, the tax authority has been entitled to replace this interim measure with one of the following:

  • bank guarantee;
  • pledge of property;
  • surety.

Previously, asset freezing could only be a replaced by a pledge.

  • This year, new non-working days have been announced by the President in connection with the unfavourable epidemiological situation. First, such days off were announced from 30 March to 3 April, then from 4 April to 30 April. However, exceptions have been made for many entities.
  • The deadlines required by the Tax Code for payments and filings with respect to taxes, dues and insurance contributions falling on the newly introduced non-working days have been extended until 6 May, the closest working day.
  • Now, the amount of damage caused by tax evasion will be determined only by the absolute amount of unpaid taxes, dues and insurance contributions for a period of three consecutive fiscal years:
  • over 15 million rubles, deemed to be large scale;
  • over 45 million rubles, deemed to be particularly large scale.

Thus, the authorities will no longer calculate the damage based on a percentage ratio as it has been done until now (i.e. more than 25% or 50% of the total amount of taxes and contributions).

To assess the severity of crime related to non-performance of tax agent’s obligations, similar changes have been provisioned.

Furthermore, the authorities have adjusted the rules for assessing damage caused to the budget by insured entity’s non-performance of its obligations to pay injury insurance contributions. A provision on calculating a percentage ratio using the total amount of contributions has also been excluded from the relevant regulations. The only criterion that remains is the amount of unpaid injury insurance contributions exceeding the following amounts for three consecutive financial years:

  • 6 million rubles, deemed to be large scale damage;
  • 13 million rubles, deemed to be particularly large scale damage.
  • We believe that the general approach to the application of these amendments will be as follows. If the amended provisions enable the authorities not to prosecute a taxpayer, a tax agent or an insured entity, the new regulations will also apply to crimes committed before 12 April 2020.

Personnel-related insurance contributions for small and medium-sized enterprises have been reduced by nearly 50% for the period from 1 April to 31 December 2020.

The government will provide direct subsidies to small and medium-sized businesses from the budget.

A federal law has come into force that provides for direct subsidies from the budget for small and medium-sized businesses operating in the sectors affected by Covid-19.

The exact amount for a particular company will be calculated based on the total number of its employees as of 1 April 2020 to provide RUB 12,130 per employee per month. Companies will be able to use these subsidies for any urgent purposes.

The Federal Law on the new support measures, which were announced earlier by the President, has become effective. The new law provides for the following measures:

  • To write off taxes for the 2nd quarter of 2020, excluding VAT;
  • To set a zero rate for insurance contributions on payments to individuals that have been accrued for April, May and June 2020 by individual entrepreneurs, small and medium-sized businesses operating in the affected sectors;
  • To refund tax for 2019 paid by self-employed persons;
  • Families with children have begun to receive financial support from the state.

Since 1 June 2020, a special loan program has been launched to support employment at the enterprises affected by the pandemic. The recipients are able to obtain loans under reduced interest rates while the difference between rates should be covered by the state.
Where an enterprise maintains at least 90% of its current staff during the loan period, the principal and respective interest should be written off in full on the maturity date. If a company maintains at least 80% of its staff during the period, half of the principal and interest should written off.

Individual income tax rate to rise up to 15%

The President has proposed to increase the individual income tax rate from 13% to 15% on all income exceeding 5 million rubles per year, beginning on 1 January 2021.

Tax maneuver for IT companies

For all IT companies, the President has proposed to indefinitely reduce the following rates:

  • insurance contributions rate from 14% to 7.6%;
  • income tax rate from 20% to 3%.

Other tax measures
Russia plans to change how taxes are calculated and paid by the owners of controlled foreign companies. The President has proposed to introduce a right to pay the tax fixed at 5 million rubles per year without submitting any additional reporting.

The Government is working on the Tax Code amendments that will allow individuals who have resided in the Russian Federation for a period of 90 to 182 days in 2020 to obtain a tax resident status. The individuals will have to file an application in any form and their personal income tax returns.

Other measures

1. Loan Deferment

Loan deferment is available to small and medium-sized enterprises that operate in an economic sector on the list of industries most affected by the pandemic.

The essence of deferment is that the above entities will be entitled to receive, upon request, a six-month deferment of payments under any loan agreements signed with credit or non-credit financial organizations before 3 April.

 

2. Force majeure

Force majeure is deemed to be specific events and facts, restrictive or other special measures taken by the state authorities of Russia in connection with the Covid-19 pandemic (quarantine, curfew, restricted working hours for restaurants, parks, etc), rather than the epidemic itself.

At present, the government and the courts of the Russian Federation do not consider ruble exchange rate fluctuations as force majeure.

In our opinion, the Covid-19 epidemic (pandemic) and/or the restrictive measures associated with it, as such, do not create legal consequences for the parties’ obligations in the absence of any negative implications for these parties engaged in a specific transaction.

The fact that the Covid-19 epidemic (pandemic) is recognized as force majeure does not release parties from fulfilling their obligations under a transaction, but relieves the debtor from being subject to the creditor’s recovery of damage caused by such force majeure (including penalties, fines, etc.).

Interest under loan agreements is not deemed to be a sanction and, therefore, loan interest shall continue to be accrued in the amount stipulated by agreement.

The mere existence of force majeure does not mean that an unfulfilled/improperly fulfilled obligation will be recognized by court as lawful and will relieve the debtor from liability for failure to fulfil this obligation if the debtor was actually able to fulfil it.

An absence of a certificate issued by a regional chamber of industry and commerce verifying the occurrence of force majeure does not affect an entity’s ability to refer in court to force majeure circumstances, because proving force majeure as such under transactions carried out in the Russian Federation does not require any special documentary justification.

To prove the occurrence of force majeure affecting international transactions, it is necessary to obtain a certificate issued by the Chamber of Commerce and Industry of Russia.

Whether the coronavirus epidemic and/or the restrictive measures associated with it are deemed to be force majeure will be determined by court in each specific case and will depend on specific circumstances of each transaction.

To comply with the force majeure occurrence procedures, the debtor shall take all reasonable measures to reduce the damage caused to the creditor due to force majeure, as well as notify the creditor that such circumstances have occurred and, if the debtor fails to do this, to compensate the creditor for the damage caused thereby.

 

3. Rent Holiday

The Order of the Government of the Russian Federation No. 670-r issued on 19 March 2020 gave companies an opportunity to obtain a deferment when renting federal property. The government recommended regions and municipalities to implement a similar measure.

Where a company rents property owned by a federal subject of the Russian Federation or a municipality, the tenant has to clarify with the lessor whether it is possible to defer payment and how to do it.

Note: A law has come into force that obliges lessors with any kind of real property ownership to grant payment deferral in 2020 in those regions that declared a high alert or emergency situation.

Recommendations on rental holidays, namely, deferment period and other terms, have been set forth in the Decree of the Government of the Russian Federation No. 670-r dated 19 March 2020.

Note: If a tenant was unable to use the respective property due to a high alert or emergency declared by a federal subject of the Russian Federation, the tenant is eligible to reduce rental payments.

The grace period is from the date the high alert or emergency is declared until 1 October 2020.

This period can be divided into two stages:

- period of high alert or emergency. A tenant shall not pay anything, except for utilities and/or property maintenance payments if they are included in the rent and the lessor has not been exempted from them;

- period from the end of high alert or emergency until 1 October 2020. A tenant shall pay 50% of the rent.

The lessor and tenant shall document the period and terms of repayment of the debt accrued during the deferment period via a supplementary deferral agreement.

The following requirements are mandatory to the above:

- debt repayment shall commence on or after 1 January 2021;

- payments shall be made in equal instalments not more than once a month;

- a single payment shall not exceed half the monthly rent under the agreement.

Note: Currently, the state authorities and the courts of the Russian Federation do not deem ruble exchange rate fluctuations to be force majeure and, therefore, exchange rate changes per se neither ensure any rental benefits nor allow for exemption from late fees or past due penalties.

 

4. Bankruptcy During the Moratorium Period

A six-month ban has been introduced for creditors on filing bankruptcy petitions against legal entities and individuals operating in the affected economic sectors, as well as against systemically important organizations, strategic enterprises, strategic joint stock companies, and strategic organizations.

To find out whether your company is subject to a bankruptcy moratorium, use the special web source created by the Federal Tax Service: https://service.nalog.ru/covid/

Until 1 May, the Federal Tax Service, state corporations and federal state authorities are prohibited from filing bankruptcy applications against any debtors.

More details about the moratorium:

- The moratorium can be extended via a decree of the Government of the Russian Federation if the grounds for the moratorium have not disappeared.

- Any creditor’s bankruptcy petition against a company subject to the moratorium filed both during the moratorium period and before the date thereof but not yet accepted by the arbitration (commercial) court will be returned.

 - Any creditor’s notification included in the Unified Federal Register of Bankruptcy Information (EFRSB) as of the moratorium introduction date regarding the creditor’s intention to file a bankruptcy petition against a company subject to the moratorium does not enable such a creditor to submit the bankruptcy petition to the court during the moratorium period. Moreover, from the moratorium commencement date, the information contained in such a notice becomes null and void. It is expected that the creditor should file such a notice again after the moratorium has ended.

A company under the moratorium is subject to the requirements similar to the monitoring procedure, during the moratorium period:

  • It is not allowed to satisfy the demands of a debtor’s member regarding an allocation of a share in the debtor’s property due to the member’s withdrawal from the company, nor is it allowed for the debtor to repurchase or acquire stocks placed or pay out the actual value of the share;
  • It is not allowed to terminate the debtor’s monetary obligations via offsetting if the required sequence of creditor claims will then be violated;
  • It is not allowed for the debtor’s property owner to seize the property belonging to the debtor if the debtor is a unitary enterprise;
  • It is not allowed to pay out dividends and income on shares, nor to distribute profit between the debtor’s members;
  • Penalties (fines, forfeits) and other financial sanctions shall not be charged due to non-performance or improper performance of monetary obligations and mandatory payments, except for current payments.

With respect to bankruptcy proceedings initiated against the debtors subject to this moratorium within three months after the moratorium is terminated:

  • all transactions involving transfer of property and assumption of obligations carried out during the moratorium period shall be void (except for transactions made in the normal course of business provided that the price of the transferred property does not exceed one percent of the value of the debtor’s assets);
  • the structure and amount of the debtor’s monetary obligations and employment-related payments, as well as the structure and amount of mandatory payments (taxes, duties, fees and other mandatory contributions paid to budgets of all levels, plus administrative and criminal fines) shall be determined as of the moratorium commencement date, while obligations denominated in foreign currency shall be determined in rubles at the exchange rate of the Central Bank of the Russian Federation as of the moratorium commencement date;
  • the period of suspicion concerning the debtor’s transactions for the purpose of challenging the debtor’s suspicious transactions (as well as transactions concluded by the debtor in order to harm the creditors’ property rights, and debtor’s transactions entailing preference to one of the creditors over the others) shall begin from the moratorium commencement date and shall include the moratorium period itself and a year after the moratorium terminates.

Thus, during the moratorium period, it becomes impossible to carry out bankruptcy action in relation to companies subject to the moratorium, while certain restrictions are imposed on such companies. In addition, upon termination of the moratorium, special rules will be applied to the bankruptcy terms and procedures with respect to such companies.

 

5. Exemption from Administrative Fines for Currency Violations

The restrictive measures of foreign countries caused by the spread of the coronavirus disease may serve as a basis for exemption from fines caused by violation of currency repatriation requirements. The Ministry of Finance has given the respective clarification in its Information Letter “Informing participants of foreign economic activity in connection with the spread of the new coronavirus disease (COVID 2019) on the necessary actions to relieve residents from administrative sanctions in the case where their foreign counterparties (non-residents) fail to meet the goods delivery (payment) terms under foreign trade agreements (contracts) ) concluded between residents and non-residents, or non-return of advance payments to residents by non-residents”.

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