Tax incentives for IT: 5 steps to success

Contents:

• Tax maneuver for IT companies: what you need to know
• Benefits of Skolkovo resident status

Tax maneuver for IT companies: what you need to know

With the adoption of Federal Law 265-FZ, IT companies have gained new advantages that allow them to significantly optimize their tax expenses. Reduction of insurance premium and income tax rates, as well as the possibility of VAT exemption, create additional opportunities for business development. These changes contribute to the increased investment attractiveness of the IT sector and stimulate the growth of new technologies and innovations. The use of these benefits can significantly increase the competitiveness of companies, improving financial performance and allowing more resources to be directed towards the development and implementation of new solutions.

• Reduction of the insurance premium rate for employees from 30% to 7.6%, which allows for a significant reduction in the payroll.
• Reduction of income tax from 20% to 3%, available only to profitable companies on the general taxation system.
• Exemption from VAT - the 20% rate is replaced by 0% for organizations selling software registered in the Register of Domestic Software.

Mikhail Stetsenko, associate partner of Legit, emphasized that only legal entities are entitled to receive these benefits. Individual entrepreneurs using the simplified tax system cannot take advantage of the benefits provided by Federal Law No. 265. This limitation is important to consider when planning tax strategies and optimizing business cash flows.

Some regions offer local tax incentives that can be beneficial to individual entrepreneurs and companies using the simplified tax system. These incentives can significantly reduce the tax burden and optimize financial expenses, making them attractive for business. Taking advantage of local tax advantages can be an important factor in the development strategy and increasing the competitiveness of entrepreneurs in various industries.

IT companies, including software developers, systems integrators, and electronics manufacturers, can count on government support. To qualify for this support, companies must meet certain criteria, including: An average headcount of at least seven employees. 90% of revenue must be generated from core IT activities. Information on headcount and revenue is compiled based on financial statements for the first nine months of the previous year or the most recent quarter for new companies. This provides up-to-date data on the financial health and personnel composition of organizations, which is important for analyzing their effectiveness and competitiveness in the market.

Full-time employees must be employed under an employment contract, and a significant portion of them must be involved in the development process. Inspectorates have the right to request documents confirming compliance with these conditions. This is important to ensure the company's legal integrity and minimize risks associated with labor relations. Proper employee registration not only complies with the law but also promotes the effective work of the development team.

The expert noted that organizations with a limited number of employees or low revenue from IT services may face the risk of additional taxes. This emphasizes the importance of correctly assessing tax liabilities for companies operating in the information technology sector. Incorrect income classification or insufficient staffing can lead to financial consequences and the need to pay additional taxes.

The company's revenue should be core, meaning it comes from core activities. This includes the sale of goods and services that are directly related to the company's business model. Core revenue ensures stable financial flows and allows for focus on developing key areas. Sustainable growth in revenue from core activities is the key to the successful functioning and long-term prospects of the company.

• sale of software and databases, including licenses;
• providing access to software using the SaaS model;
• alienation of exclusive rights to software;
• development and modification of software, both proprietary and third-party.
• installation and maintenance of software and hardware.

Maintenance of proprietary equipment and expenses on non-IT systems are not included in the revenue calculation. Tax incentives do not apply to revenue received from advertising, as well as from the sale of other goods and services. This is important to consider when planning a financial strategy and optimizing tax liabilities.

This restriction prevents large ecosystem players, such as Avito and Yandex, from taking advantage of available incentives. This occurs because the bulk of their income is generated from related services.

Large companies have the opportunity to spin off their IT department into separate legal entities, which allows them to effectively utilize tax breaks on the corresponding portion of revenue. This strategic decision can help optimize cash flows and increase overall business profitability. Spinning off an IT department also allows for a focus on innovation and technology improvement, which is important in a competitive market.

To receive tax breaks under the IT maneuver, an application and accreditation are required. Software developers must register with the Ministry of Digital Development, and electronics manufacturers must register with the Register of the Ministry of Industry and Trade. These steps are mandatory to receive all the benefits and support provided, which contributes to the development of the IT sector and increases the competitiveness of domestic companies.

It is important that the company has the OKVED code 62. If this code is not available, an application for one must be submitted through the State Services portal. This will enable your company to comply with legal requirements and simplify the process of registering activities in the IT sector. Obtaining the OKVED 62 code will also open up new opportunities for doing business and interacting with government agencies.

After submitting an application for accreditation, the verification process takes 3 to 4 months. Benefits begin the month following the receipt of accreditation.

Working with international clients requires special attention to detail. It is important to keep in mind that if the contract specifies the territory of work performance in Russia, the company may become a VAT payer. Therefore, it is necessary to carefully check for the existence of a double taxation agreement between the countries. This will help avoid unwanted financial consequences and ensure more favorable terms of cooperation.

Benefits of Skolkovo resident status

Over the past ten years, residents of the Skolkovo Innovation Center have enjoyed significant government support, including unique tax breaks. These preferences are similar to those available to other market participants; however, they have their own peculiarities in terms of conditions and implementation. The support provided by Skolkovo promotes the development of startups and innovative technologies in Russia, which makes participation in this center especially attractive for entrepreneurs and investors.

• Profit tax — 0% instead of the standard 20%. Conditions: total income does not exceed 1 billion rubles per year.
• VAT exemption — 0% rate. Conditions: total income does not exceed 1 billion rubles per year, does not apply to the import of goods.
• Reduced rates of insurance contributions: 14% for pension insurance, 0% for social and medical insurance. With the status of an IT company, rates of up to 7.6% can be applied.
• Property tax — 0%. Conditions: total income does not exceed 1 billion rubles per year.

The maximum period for providing all benefits is 10 years. Expert Mikhail Stetsenko emphasizes that residents have the opportunity to reimburse customs expenses on goods imported for research activities. Customs clearance must be handled by a Skolkovo representative. This requirement allows residents to effectively utilize resources for scientific research and innovation projects. An application for status can be submitted by either an individual or a legal entity interested in conducting research or commercializing its results. A detailed description of your company's area of ​​work and innovative product is key. This will help highlight the uniqueness of your proposal and increase the chances of successful approval. The application undergoes a thorough evaluation by an independent expert committee, which analyzes it based on several key parameters, such as scientific significance, novelty, and international experience. If rejected, the applicant will be provided with information on the reasons for the rejection, along with recommendations for making the necessary changes to improve the chances of successful consideration in the future. To apply for participation in the Skolkovo program, please complete a specialized form on the official website. Please note that information must be provided in both Russian and English. A response to your application typically occurs within three months.

The application must be carefully prepared, otherwise experts may return it for revision. This is according to Alexey Panev, CEO of Navigine. Research shows that successful companies often pass the selection process on the first try, but this requires significant time and effort. A well-prepared application is the key to a successful outcome.

Panev recommends studying examples of successful applications to better understand the structure of the information presented. Experienced entrepreneurs can turn to acquaintances for samples, but it is important to avoid directly copying other people's applications. This will help create a unique and effective document that reflects your individuality and approach to business.

Skolkovo resident status has certain advantages, but it is not always beneficial for all companies. Nail Gafurov, who is developing an EdTech startup, noted that the introduction of new benefits for small businesses made moving to Skolkovo impractical for his company. This emphasizes the need to carefully evaluate all factors before deciding to register with the innovation center. Companies should consider their unique needs and capabilities to determine whether resident status will truly facilitate their growth and development in the current environment.

Gafurov took advantage of the reduced tariffs for small businesses established by Federal Law No. 102-FZ of April 1, 2020. He noted that the Skolkovo registration process requires significant time and labor, and for small companies, savings remain minimal. This highlights the need to optimize processes to support small businesses and increase their competitiveness. Resident status is not permanent and can be lost. Companies risk losing this status if they engage in activities that deviate from their stated objectives. This is monitored through semi-annual and annual reports, which allow for monitoring compliance with stated goals and actual activities. It is important to comply with these requirements to maintain residency and avoid negative consequences.