Russian president signs law on windfall tax

MOSCOW. Aug 4 (Interfax) - Russian President Vladimir Putin has signed the law to introduce a tax on windfall profits for past years.

The tax is expected to generate about 300 billion rubles of additional revenue for the federal budget.

The document establishes a one-off tax for large companies whose average profit for 2021 and 2022 was more than 1 billion rubles. The tax rate will be 10% of the amount of excess profit for 2021-2022 over the same figure for 2018-2019. The tax must be paid no later than January 28, 2024 and its amount is calculated by taxpayers themselves. The amount of tax can be halved to an effective rate of 5% if a deposit is paid between October 1 and November 30, 2023.

The tax will be paid by Russian companies, as well as foreign companies operating in Russia through a representative office, while foreign organizations recognized as tax residents of the Russian Federation are treated as Russian ones

The tax will not apply to companies established after January 1, 2021 except for those formed through reorganization; to small and medium-sized businesses; to organizations paying the single agricultural tax; to companies in the oil and gas sector, as well as organizations that have a stake in such companies of at least 75%, and members of consolidated tax groups which include such companies; coal companies; LNG producers; and companies that had no sales revenue in 2018-2019.

Banks and non-credit financial organizations involved in bankruptcy prevention measures as of January 1, 2023 with the participation of the Central Bank of Russia or the Deposit Insurance Agency will not pay the tax. Also exempt from the tax are property developers that are implementing projects with citizens' funds through escrow accounts, and did not pay dividends in 2021-2022.

Taxable income for the purposes of the windfall tax will be the monetary value of the excess profits of previous years, which is defined as the excess of the arithmetic mean of profits for 2021 and 2022 over profits for 2018 and 2019. Profit will be calculated as the sum of taxable income for corporate income tax, taking into account the losses carried forward from previous periods. At the same time, certain taxable income will not be taken into account, including income from dividends, from transactions with securities, from the sale of participation interests or shares, the financial results of the activities of the Central Bank under the Law on the Bank of Russia, profit from controlled foreign corporations, profits of participants in special investment contracts, and income of international holding companies from the use of intellectual property rights.

For companies participating in agreements on the protection and promotion of capital investments, taxable income from activities related to the implementation of an investment project under this agreement will not be taken into account when determining profits.

Taxable income is assumed to be zero if the arithmetic mean of profit for 2021 and profit for 2022 was no more than the amount of profit for 2018 and profit for 2019, and also if it was no more than 1 billion rubles - this provision will not apply to participants of consolidated tax groups.

The Finance Ministry has estimated how the windfall tax burden will be distributed among the top 50 taxpayers: 20% will be paid by enterprises in solid minerals extraction, 19% by mineral fertilizer producers, 13% by metallurgical companies, and 12% by wholesale and retail trade enterprises, and 9% by banks, 5% by petrochemical enterprises, power generation, construction companies, manufacturing, logistics and less than 1% by other sectors.

The total number of taxpayers will be about 2,500, or less than 3% of the total number of organizations, the ministry estimates.