Putin signs law on tax relief for businesses operating in Arctic
Vladimir Putin signed a law on providing profit tax and VAT concessions as well as on introducing severance tax rebate for new projects in the Russian Arctic. The law is included in the government's package of state support and stimulation measures for entrepreneurship in the region.
The law resets to zero the part of the corporate profit tax payable to the federal budget, provided that the region will reduce the rate of the profit tax payable to the regional budget. The measure will be applicable for ten years from the first receipt of profit on the activity in the Arctic zone under an investment agreement. To be eligible for the tax relief, companies must also keep separate records of the revenues and expenses generated by the activity in the Arctic and by any other operations elsewhere.
It is expected that the reduced profit tax rates will be applicable to the entire taxable income on the condition that the revenue from the operations covered by the agreement accounts for 90 percent of the entire annual revenue or the aggregate revenue of the past three years.
The law also establishes zero VAT on the services provided by the ice-breaker fleet to vessels shipping goods for export and on the services of transporting goods by sea for their further shipment outside of Russia.
A rebate on severance tax is introduced for 2021-2032 with regard to the production of specific types of mineral resources (oil shale, peat, saleable ore, non-metal commodities, diamonds and other things) in the new subsurface site in the Arctic zone. Coal and hydrocarbon production will not be eligible for the rebate. New subsurface sites include those where the depletion of reserves will be equal to or below 0.001 as of January 2021, or the sites that are not recorded in the national reserves register as of the same date. The tax rebate may not be over 50 percent of the tax paid in the respective taxable period.
The law will take effect within a month of its official publication but not earlier than the first day of the next profit tax and VAT period. The regulation concerning the severance tax rebate will come into force on January 1, 2021.
In March, the State Duma passed a bill on tax incentives for mineral exploration and evaluation, exploration and production of hydrocarbons in specific areas of the Russian Arctic. The bill introduced a range of severance tax concessions and made it possible for companies to switch to paying excess profits tax.