Tax changes under martial law

17/ 03/ 2022

This week, the Verkhovna Rada adopted draft law №7137-d, which introduces tax changes under martial law. Thus, large businesses can now pay a single tax of 2%. The annual income limit for businesses has been increased from 10 million to 10 billion, restrictions on the number of employees and activities are removed (does not apply to excisable goods and gambling business). During the period of martial law, the provision of e-services and the submission of e-documents by taxpayers are carried out on working days from 8 am to 6 pm. Zero excise tax rate and 7% VAT on fuel were established. The transfer of fuel as the result of forced alienation or seizure of property for the needs of the state, the transfer of fuel to the Armed Forces and other state law enforcement agencies, as well as the provision of fuel as humanitarian aid are exempt from taxation and excise duty. Charitable assistance provided to combatants and persons living on the territory of hostilities is not subject to personal income tax. All non-targeted charitable assistance, provided to persons affected by the armed aggression of the Russian Federation, is exempt from personal income tax. The right to a tax rebate of 16% (instead of 4% now) on donations to non-profit organizations was provided. The restrictions on the allocation of income to the expenses of charitable assistance do not apply to charitable assistance provided to health care institutions and to the special NBU account in support of the armed forces. All factual checks are resumed. Even those that were banned during quarantine. In-house inspections are resumed based on the declarations of the VAT refund application. It is specified that the factual checks may be carried out to ensure the ability to pay by card (the State Tax Service has the right to draw up protocols). It is specified that VAT is not paid on goods destroyed during the war and/or transferred to the needs of defense. During the war, the deadlines for appealing against the State Tax Service decisions are suspended. Damage caused by regulatory authorities as a result of force majeure during martial law will not be reimbursed. Penalties will not be charged for violations resulting from force majeure during martial law. Penalty for late budget VAT refund will not be charged if the delay is caused by force majeure. It is allowed to include in the VAT tax credit the amounts for which tax invoices have not yet been registered, but the necessary primary documents are available. Such invoices must be registered within 6 months from the end of martial law. From March 2022 until the end of the year, taxpayers whose land is located in the territories where hostilities are taking place are exempt from the land tax. The list of territories is determined by the Cabinet of Ministers. For 2022 and 2023, the owners of lands, on which hostilities are taking place, are exempt from paying the minimum tax liability for landowners (МПЗ). In 2022, the environmental tax shall not be paid in the territories where hostilities are taking place For the period of martial law, the deadlines set for banks, other financial institutions, and supervisory authorities to send a notice of opening or closing an account and notifications of account registration or refusal to register an account by the supervisory authority shall be suspended. In case the financial institution does not receive a notification (receipt) from the controlling body confirming the fact of acceptance of the notification on opening an account, expenditure operations may be carried out on such accounts without receiving confirmation. Temporarily, until the end of martial law, the import and sale of tobacco products are allowed without established labeling. At the same time, the products shall bear the labeling of EU standards. Sanctions for violations of the law on RSO (registrars of settlement operations) are not applied until the end of martial law, except for sanctions for violations in the sale of excisable products. The powers of the NBU are extended for the period of martial law. It is allowed to buy securities from issuers. The NBU is expected to pay the profit for 2021 in the 1st quarter of 2022. Banks have the right to issue blank loans. A number of financial monitoring concessions are provided for banks during martial law. During martial law: and + 4 months, the NBU is obliged to identify banks that have violated the minimum value of regulatory capital adequacy ratio or violated the value of at least one of the liquidity ratios below the minimum regulatory values for 30 consecutive calendar days. and + 4 months, the NBUs obligation to classify banks as insolvent in the event of a reduction in the regulatory capital adequacy ratio and/or fixed capital adequacy ratio by 50 percent or more of the minimum level is removed. and + 30 days, the liability for late payment on consumer loans is removed. and + 30 days, foreclosure of property and eviction of residents are prohibited. Does not apply to newly concluded mortgage agreements. Confiscation of property is allowed not only from state-owned companies of the Russian Federation but also from all citizens and companies of the Russian Federation. From March 1 until the end of martial law + 12 months, the self-employed, individual entrepreneurs, and farmers are exempt from paying pay the single social contributions (SSCs) for themselves. Simplified 2-3 groups are allowed not to pay SSCs for mobilized workers. Such amounts will be paid from the state budget. For the period of martial law and for 3 months after its end, fines and penalties on SSCs shall not be applied, and inspections shall not be carried out. At the same time, a number of issues have arisen in business regarding the application of these rules. The issues concern, in particular, the tax consequences of the transition from the common to the new (simplified) taxation system. We are preparing a list of questions to regulatory authorities regarding the application of the new rules and hope for their promptest consideration.

This week, the Verkhovna Rada adopted draft law №7137-d, which introduces tax changes under martial law.

Thus, large businesses can now pay a single tax of 2%. The annual income limit for businesses has been increased from 10 million to 10 billion, restrictions on the number of employees and activities are removed (does not apply to excisable goods and gambling business).

During the period of martial law, the provision of e-services and the submission of e-documents by taxpayers are carried out on working days from 8 am to 6 pm.

Zero excise tax rate and 7% VAT on fuel were established.

The transfer of fuel as the result of forced alienation or seizure of property for the needs of the state, the transfer of fuel to the Armed Forces and other state law enforcement agencies, as well as the provision of fuel as humanitarian aid are exempt from taxation and excise duty. Charitable assistance provided to combatants and persons living on the territory of hostilities is not subject to personal income tax. All non-targeted charitable assistance, provided to persons affected by the armed aggression of the Russian Federation, is exempt from personal income tax.

The right to a tax rebate of 16% (instead of 4% now) on donations to non-profit organizations was provided. The restrictions on the allocation of income to the expenses of charitable assistance do not apply to charitable assistance provided to health care institutions and to the special NBU account in support of the armed forces.

All factual checks are resumed. Even those that were banned during quarantine. In-house inspections are resumed based on the declarations of the VAT refund application. It is specified that the factual checks may be carried out to ensure the ability to pay by card (the State Tax Service has the right to draw up protocols). It is specified that VAT is not paid on goods destroyed during the war and/or transferred to the needs of defense.

During the war, the deadlines for appealing against the State Tax Service decisions are suspended.

Damage caused by regulatory authorities as a result of force majeure during martial law will not be reimbursed.

Penalties will not be charged for violations resulting from force majeure during martial law. Penalty for late budget VAT refund will not be charged if the delay is caused by force majeure.

It is allowed to include in the VAT tax credit the amounts for which tax invoices have not yet been registered, but the necessary primary documents are available. Such invoices must be registered within 6 months from the end of martial law.

From March 2022 until the end of the year, taxpayers whose land is located in the territories where hostilities are taking place are exempt from the land tax. The list of territories is determined by the Cabinet of Ministers.

For 2022 and 2023, the owners of lands, on which hostilities are taking place, are exempt from paying the minimum tax liability for landowners (МПЗ).

In 2022, the environmental tax shall not be paid in the territories where hostilities are taking place

For the period of martial law, the deadlines set for banks, other financial institutions, and supervisory authorities to send a notice of opening or closing an account and notifications of account registration or refusal to register an account by the supervisory authority shall be suspended. In case the financial institution does not receive a notification (receipt) from the controlling body confirming the fact of acceptance of the notification on opening an account, expenditure operations may be carried out on such accounts without receiving confirmation.

Temporarily, until the end of martial law, the import and sale of tobacco products are allowed without established labeling. At the same time, the products shall bear the labeling of EU standards.

Sanctions for violations of the law on RSO (registrars of settlement operations) are not applied until the end of martial law, except for sanctions for violations in the sale of excisable products.

The powers of the NBU are extended for the period of martial law. It is allowed to buy securities from issuers. The NBU is expected to pay the profit for 2021 in the 1st quarter of 2022. Banks have the right to issue blank loans. A number of financial monitoring concessions are provided for banks during martial law. During martial law:

and + 4 months, the NBU is obliged to identify banks that have violated the minimum value of regulatory capital adequacy ratio or violated the value of at least one of the liquidity ratios below the minimum regulatory values for 30 consecutive calendar days.
and + 4 months, the NBU’s obligation to classify banks as insolvent in the event of a reduction in the regulatory capital adequacy ratio and/or fixed capital adequacy ratio by 50 percent or more of the minimum level is removed.
and + 30 days, the liability for late payment on consumer loans is removed.
and + 30 days, foreclosure of property and eviction of residents are prohibited. Does not apply to newly concluded mortgage agreements.
Confiscation of property is allowed not only from state-owned companies of the Russian Federation but also from all citizens and companies of the Russian Federation.

From March 1 until the end of martial law + 12 months, the self-employed, individual entrepreneurs, and farmers are exempt from paying pay the single social contributions (SSCs) for themselves. Simplified 2-3 groups are allowed not to pay SSCs for mobilized workers. Such amounts will be paid from the state budget. For the period of martial law and for 3 months after its end, fines and penalties on SSCs shall not be applied, and inspections shall not be carried out.

At the same time, a number of issues have arisen in business regarding the application of these rules. The issues concern, in particular, the tax consequences of the transition from the common to the new (simplified) taxation system. We are preparing a list of questions to regulatory authorities regarding the application of the new rules and hope for their promptest consideration.