The Pros and Cons of Different Tax Regimes for Businesses in Russia

Choosing the right tax regime is a critical decision for any business, as it impacts the overall tax burden, reporting requirements, and available tax benefits. In Russia, there are several primary taxation options, each with its unique features, advantages, and disadvantages. In this article, we will examine the main taxation regimes for businesses and provide recommendations for selecting the most suitable one.

1. Simplified Taxation System (STS)

The STS is one of the most popular tax regimes among small and medium-sized businesses in Russia, as it allows for a significant reduction in tax burden and simplifies reporting.

Advantages of STS:

Low tax rates. The STS offers two options: 6% on revenues or 15% on the difference between revenues and expenses. This allows businesses to choose the most optimal option based on their expense structure.
Simplified reporting. Enterprises using STS are not required to submit complex tax declarations, which reduces administrative costs.
Access to tax holidays. In some regions, businesses registered under the STS can benefit from tax holidays for up to two years.

Disadvantages of STS:

Income limitations. There are income thresholds for applying STS (246.1 million rubles in 2024). If the company exceeds this limit, it must switch to the general taxation regime.
Employee limits. The number of employees in the company must not exceed 130 individuals.
Limited expenditure list. When opting for STS "income minus expenses," it's important to note that not all expenses can be considered for taxation purposes.

2. General Taxation System (GTS)

The GTS is the standard tax regime used by most large companies and all companies that do not meet the criteria for special regimes.

Advantages of GTS:

No income or employee limitations. Companies under GTS can have unlimited income and number of employees.
Right to VAT refunds. Under GTS, companies can claim VAT refunds, which is particularly relevant for organizations working with large corporate clients or exporting goods.
Ability to account for all expenses. All verified expenses can be considered when calculating profit tax, allowing for a reduction in taxable base.

Disadvantages of GTS:

Complex reporting. GTS requires more complex accounting and reporting procedures, including VAT and profit tax declarations.
High tax burden. GTS involves a profit tax (20%), VAT (usually 20%), and other taxes, which may not be beneficial for some businesses.

3. Patent Tax System (PTS)

The PTS is a special regime available only to individual entrepreneurs engaged in specific types of activities.

Advantages of PTS:

Fixed tax amount. PTS allows for the advance calculation of tax liabilities for the entire year, simplifying financial planning.
No need for full accounting. Entrepreneurs on a patent do not need to maintain full accounting records, which reduces administrative burdens.
Flexibility in term selection. The patent can be issued for a period ranging from one month to one year.

Disadvantages of PTS:

Limited list of activities. PTS can only be applied to specific types of activities as established by law.
Income cap. Entrepreneurs operating under a patent should not exceed 60 million rubles in annual income.
Applicable only to individual entrepreneurs. Legal entities cannot utilize the PTS.

4. Unified Agricultural Tax (UAT)

The UAT is a tax regime designed for agricultural enterprises involved in the production of agricultural goods.

Advantages of UAT:

Low tax rate. The UAT has a tax rate of 6% on the difference between income and expenses.
Simplified reporting. Agricultural enterprises under UAT are exempt from profit tax and VAT (except for VAT on imports).
Special benefits. Agricultural companies can access additional advantages and subsidies.

Disadvantages of UAT:

Activity restrictions. UAT is only available to enterprises whose primary activity is agricultural production.
Seasonal dependence. Due to the seasonal nature of agricultural activities, income and expenditure fluctuations can complicate tax payment planning.

5. How to Choose the Right Tax Regime

To select the optimal taxation regime, entrepreneurs should consider several factors:

Business size. Small companies with modest revenues may benefit from STS or PTS, while large companies should consider GTS.
Nature of activities. If a company is engaged in export or serves large corporate clients, GTS with VAT refunds may be a beneficial option.
Level of administrative burden. STS and PTS offer simplified accounting, reducing administrative costs.
Growth plans. If a business plans rapid growth, it's crucial to consider income and employee limits, preparing in advance for potential transitions to other regimes.

6. The Impact of Changes in Tax Legislation

Changes in tax legislation can influence the choice of taxation regime. It is essential to stay updated with new laws and amendments to adapt tax policies in a timely manner:

Relevant changes. Frequent updates to tax rates, limits, and conditions for applying tax regimes can affect the viability of specific options.
Support for businesses. Government support measures, such as tax holidays or subsidies, can make certain regimes more advantageous depending on the economic situation.

Choosing the appropriate tax regime is a key factor influencing the financial efficiency of a business. Each system has its pros and cons, and the optimal choice depends on the company's specifics, size, type of activity, and future growth plans.