Upper Limit of Income Eligible for Transition to Simplified Taxation System Raised but Its Indexing Cancelled


Federal Law No. 204-FZ of 19.07.2009 “On amendments to Part Two of the RF Tax Code”

In 2010 the revised upper limit of income eligible for transition to the simplified taxation system of RUB60mn will start to apply. To be eligible for the transition in 2010 the income for the 9 months of 2009 shall not exceed RUB45mn. Instead of having been repealed, the Tax Code provisions establishing the former limits have been suspended for three years. Annual inflation–based indexation of the indicators has also been suspended.

The law being considered, which was initiated by the President as a measure intended to support small businesses, rather makes the tax regime less predictable for them. When resolving on the transition to the simplified system and especially back to the standard system one should consider many factors, primarily those related to the VAT and the risk of VAT recovery for a protracted period which can adversely affect the business.

As for the announced extension of the range of the simplified taxation system users due to the higher income limit, we remind again that actually the limit has not been raised. If all the deflators defined by the Government are consistently applied, the upper limit for the simplified system users in 2009 is as high as RUB58mn while the qualifying limit for the transition to the simplified system is RUB43.4mn. This approach was already applied by the Supreme Court of Arbitration (Ruling by the Presidium of the Supreme Court of Arbitration No. 12010/08 of 12.05.09) and is backed by the Federal Tax Service (letter No. ShS-22-3/539@ of 03.07.09).

Thus, having achieved its political target the law has deprived small and medium businesses of the opportunity to plan operations and tax burden for any period longer than 2 years.