Trade Levy to Be Introduced in Moscow Starting from July 2015
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Tax Flash Report by PwC experts Trade levy to be introduced in Moscow starting from July 2015 November 2014 / Issue No. 38 In brief On 21 November 2014, a bill to introduce local trade levy passed on the third reading in the Russian State Duma [1]. The levy will be introduced in Russia's three federally designated cities (Moscow, St Petersburg and Sevastopol); in the City of Moscow it will be charged starting from 1 July 2015. The bill introduces a new chapter (Chapter 33 "Trade levy") in the "Local Taxes and Levies" section of the Russian Tax Code. The new Chapter 33 provides general guidance for assessing and paying this levy. The specific tax rates and exemptions are to be set by the local authorities. However, the amount of trade levy may not exceed the tax that would be payable under the patent taxation system for the relevant type of activity. The trade levy is not expected to increase the overall tax burden on taxpayers because the trade levy will be deducted from the income tax amounts (personal income tax or corporate income tax or tax paid under special regimes). In other words a taxpayer will pay the larger amount out of two. The tax burden may increase, however, for taxpayers with low or negative profitability (and low income tax amount) and large shopping venues. In detail Who will pay the trade levy and how? Sole proprietors who use the patent taxation The levy will be paid by companies and sole proprietors system and taxpayers using agricultural produce that are engaged in the following commercial taxation systems will be exempt from the local trade activities: levy. 1) sales made through a stationary distribution network with no dedicated sales areas (except for gas The levy is payable if movable or immovable property is stations); used for the above types of activities at least once per quarter. 2) sales made through non-stationary distribution network; The levy will be paid quarterly (by the 25th day of the 3) sales made through a stationary distribution following month) and the levy rate will be set by the network with dedicated sales areas; relevant local authorities within the range stipulated by 4) sales made through releasing goods directly the Tax Code (and the local authorities may reduce the from a warehouse; rate to zero), calculated based on a sales facility or its 5) organisation of retail markets. area (note, however, that the wording of the bill is unclear as to which specific area is to be used for Sales means commercial activity related to retailing, calculating the rate: total area or sales area, as well as small-scale wholesaling and wholesaling, and sale goods how tax should be calculated for facilities, e.g. through stationary or non-stationary distribution warehouses, that have no sales area). The sales area is networks, or through warehouses. calculated in the same way as for patent payment purposes [2]. These provisions of the bill may be interpreted to mean that online stores and distributors with warehouses in The levy cannot exceed the estimated tax under the the three federal-level cities where the levy is to be patent taxation system in a specific municipality based introduced must pay it. www.pwc.com on a patent for current type of activity issued for three Novokosino and Kosino-Ukhtomskiy Sub- months. Districts), South-Eastern AD (except for the Nekrasovka Sub-District), Southern AD, South- So, let's try to calculate the maximum levy in Moscow Western AD (except for the Northern Butovo using the imputed income and tax rate for and Southern Butovo Sub-Districts), Western calculating the patent in 2015 in accordance with AD (except for the Solntsevo, Novo-Peredelkino the bill, which has already passed the second reading in and Vnukovo Sub-Districts), and North- the Moscow Duma. Western AD (except for the Mitino and Kurkino Sub-Districts) of the City of Moscow For municipal sub-districts ("rayons") within Moscow's Central Administrative District Where for 1m2: RUB 2,000,000*6%/50 = RUB 2,400. The sales area Levy (annually) Where for 1m2: RUB 4,000,000*6%/50 = RUB 4,800. 50.1m2 RUB 120,240 The total sales area is Levy (annually) 500m2 RUB 1,200,000 50.1 m2 RUB 240,480 1,000m2 RUB 2,400,000 500m2 RUB 2,400,000 5,000m2 RUB 12,000,000 1,000m2 RUB 4,800,000 5,000m2 RUB 24,000,000 The rate cannot exceed RUB 550 for 1m2 of a market area per quarter (subject to annual indexation) when organising retail markets. In municipal sub-districts ("rayons") and communities ("poseleniye") within Moscow's Taxpayers may reduce the income tax amounts on trade Zelenograd, Troitsk and Novomoskovsky levy amounts, provided the taxpayer submits a special Administrative Districts (AD), as well as in the notification. Molzhaninovsky Sub-District of Moscow's Northern AD; the Severny Sub-District of Both newly registered taxpayers and those already Moscow's North-Eastern AD; the Vostochny, involved in the above activities must submit a special Novokosino and Kosino-Ukhtomsky Sub- notification to the tax authorities (The Federal Tax Districts of Moscow's Eastern AD; the Northern Service will draft and provide the relevant form). Butuvo and Southern Butovo Sub-Districts of Otherwise, conducting such activities will be deemed as Moscow's South-Western AD; and the Mitino operating without tax registration, which is punishable and Kurkino Sub-Districts of Moscow's North- by a penalty of 10% of earnings or RUB 40,000, Western AD whichever is greater. If a taxpayer fails to submit the required notice, it would not be entitled to offset the Where for 1m2: RUB 1,400,000*6%/50 = RUB 1,680. trade levy amount against income tax amount. The total sales area is Levy (annually) 50.1 m2 RUB 84,170 Payers of the levy should be registered at the location of 500m2 RUB 840,000 their sale facility (with some specific aspects). 1,000m2 RUB 1,680,000 5,000m2 RUB 8,400,000 What does this mean for you? At this stage, it would be advisable to assess how this development may affect your expected tax liabilities. In sub-districts in the Northern AD (except for We recommend using the maximum possible levy rates the Molzhaninovsky Sub-District), North- for your preliminary calculation. Eastern AD (except for the Severny Sub- District), Eastern AD (except for the Vostochny, [1] http://asozd2.duma.gov.ru/main.nsf/(Spravka)?OpenAgent &RN=527250-6 [2] Under[2 Article 346.43.3.5 of the Russian Tax Code, a sales area is a section of a shop or pavilion, which is intended for housing equipment used for the display and demonstration of goods, cash payments and customer service, as well as the area occupied by cash register units and booths, the area of workstations for service personnel, and the area for customer access. A sales area may also include leased areas. The area for utility, administration and amenity rooms, and rooms for the acceptance, storage and pre-sale preparation of goods, which are not used for servicing clients, is not included in the sales area. Contacts We would be happy to answer your questions. 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