Last week (3 June), the State Duma of the Russian Federation considered high-profile draft law No. 639663-8, which introduces a progressive scale of personal income taxation and provides for other significant amendments affecting the main federal taxes and special tax regimes. Below we outline the most significant provisions of the Draft Law.

1. Progressive Scale for Personal Income Tax (PIT)

1.1 New Progressive PIT Rates

Perhaps the most publicly debated element of the Draft Law is the proposed amendment to the PIT chapter, which will substantially increase the tax burden on individuals.The Draft Law envisages a progressive scale for the main category of personal income, namely:

• salaries;
• income from the performance of works or provision of services;
• undistributed profits of controlled foreign companies (CFCs);
• income from transactions involving digital financial assets;
• income from participation in an investment partnership;
• lottery winnings and similar gains;
• other income not expressly listed in categories taxed at different rates.

These incomes will be taxed at the following rates:

• 13% – up to RUB 2.4 million per year;
• 15% – from RUB 2.4 million to RUB 5 million per year;
• 18% – from RUB 5 million to RUB 20 million per year;
• 20% – from RUB 20 million to RUB 50 million per year;
• 22% – over RUB 50 million per year.

The higher rates will apply only to the portion of income exceeding the relevant threshold, not to the taxpayer’s entire income.

A rate of 15% (13% on the first RUB 2.4 million of income) will continue to apply to the following income:

• income from the sale of property and from gifts of property;
• income from securities transactions;
• dividends;
• interest on deposits in Russian banks;
• insurance and pension payments;
• income from securities transactions recorded on an individual investment account.

This same rate (15%/13%) will apply to the portion of income exceeding RUB 50 million from the sale of shares or participatory interests held for more than five years. The long-term holding exemption will thus apply only to the first RUB 50 million of such gains. For non-residents, no tax-free threshold is provided for gains from the sale of shares/interests.

Income of non-residents from Russian sources will remain taxable at 30%, with exceptions only for income from services performed in the Russian segment of the Internet and for remote workers employed under Russian labour contracts. These categories will be taxed at the same progressive rates as apply to Russian residents’ main category income. Dividends and interest on deposits in Russian banks received by non-residents will remain subject to a 15% rate.

1.2 Fixed Tax on CFC Profits

The Draft Law significantly changes the rules for the preferential taxation of undistributed CFC profits. The key difference is that the fixed tax of RUB 5 million will be payable per CFC, rather than as a single payment regardless of the number of CFCs controlled. From next year, taxpayers opting for the fixed tax regime must pay RUB 5 million for each CFC in which they are a controlling person.

2. Corporate Profit Tax

Alongside the introduction of progressive PIT rates, the Draft Law increases the standard corporate profit tax rate by five percentage points — from 20% to 25%.

From 2025 to 2027, a reduced rate of 5% will apply to the income of IT companies.

The zero rate on dividends and gains from the sale of shares/interests in subsidiaries held for more than five years will be retained, as will the reduced 15% rate for personal funds.

The rules on investment tax deductions will also be significantly revised.

3. Simplified Tax System (STS) – Changes to Thresholds and VAT

The Draft Law proposes major amendments to the simplified tax system (STS) to allow a smoother transition to the general taxation regime as businesses grow.

Key changes include:

• raising the base income threshold for eligibility from RUB 112.5 million to RUB 337.5 million;
• increasing the maximum permitted headcount to 130 employees, without the possibility of exceeding this;
• setting the maximum income for remaining on STS at RUB 450 million;
• raising the residual value limit for fixed assets from RUB 150 million to RUB 200 million (indexed by the deflator coefficient).
• The most significant change is the introduction of VAT for STS taxpayers exceeding certain income levels:
• RUB 60 million to RUB 250 million per year – VAT at 5%;
• RUB 250 million to RUB 450 million per year – VAT at 7%.

For these reduced rates, the VAT base will be calculated without deductions (i.e. input VAT will not be creditable).

Above RUB 450 million, the taxpayer will lose the right to apply STS, and VAT will be payable at the general rate.

An alternative will be offered: apply the standard 20% VAT rate with input VAT deductions. Currently, STS taxpayers do not pay VAT.

The Draft Law also retains the two base STS rates: 6% for the “income” regime and 15% for the “income minus expenses” regime, while abolishing the higher rates of 8% and 20%.

4. Tax Amnesty for “Business Splitting”

Tax relief is proposed for taxpayers who have engaged in “business splitting” but voluntarily discontinue the practice. Definitions of “business splitting” and “voluntary discontinuation” are provided in the Draft Law.

From the start of next year, all decisions arising from desk and field audits for 2022–2024 that identified business splitting will be suspended, although they may still be appealed within standard time limits.

Tax assessments, penalties and interest for this period will be written off if one of the following applies:

1. Field audits for 2025–2026 find no signs of business splitting.

• If partial discontinuation is identified in 2025–2026, liability will remain for the relevant part.
• Discontinuation after the start of a 2025–2026 audit will remove liability only for 2022–2023; 2024 liabilities will remain.

2. No field audit is conducted for 2025–2026.

• In this case, write-off will occur no earlier than 1 January 2030.

3. The taxpayer ceases activity (reorganisation, liquidation/closure of sole proprietorship, bankruptcy).

• If the tax authority finds that business splitting continued with the involvement of other parties, the liabilities for 2022–2024 will be reinstated.

If a decision from an audit becomes final before 1 January 2025, the amnesty will not apply.

Audit materials for 2022–2024 will be referred to the Investigative Committee only after the decisions have entered into force.

Although these initiatives appear positive for taxpayers seeking to “legalise” their business structure, the Draft Law currently lacks sufficient detail on the amnesty mechanism, making its practical application difficult to predict.

The above covers only the most significant of the changes proposed in the Draft Law.

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