Russian Finance Ministry proposes VAT exemption for businesses transferring anti-drone equipment to state

MOSCOW. Oct 1 (Interfax) - The Russian government plans to incentivize business's purchase of systems for protecting against unmanned attacks and their transfer to the state by removing these goods and services from VAT, according to the explanatory note to the draft amendments to the Tax Code submitted to the State Duma.

According to the explanatory note, "A comprehensive mechanism of tax incentives for expenses on protection against unmanned aerial vehicles (UAVs) is proposed. In terms of VAT, it is proposed not to recognize [the following] as subject to taxation: the transfer of goods (performance of work, provision of services), the transfer of property rights on a gratuitous basis to the Defense Ministry, the Russian National Guard, the Federal Security Service and the Emergency Situations Ministry for the purposes of protection against UAVs; the transfer on a gratuitous basis of food to citizens located in protective structures, basements, and other similar facilities owned by the taxpayer by right of ownership or on another lawful basis, for the purposes of their protection from the use/employment of UAVs."

At the same time, when applying this benefit, it is envisaged that the right to deduct input VAT will be preserved for taxpayers.

The draft amendments to the Tax Code introduce a new norm permitting "the non-recognition of not only immovable but also movable property as a subject to taxation by value added tax the transfer on a gratuitous basis to the state treasury."