The Unified Agricultural Tax in Russia

The Unified Agricultural Tax in Russia

Russia is the biggest country in the world and for this reason farmers from countries where land is more scarce, like the Netherlands, often look with interest at this collosal ‘land of opportunities.’But how does farming in Russia work? In this blog post I will explain how agricultural activities are taxed in Russia. If you are interested in owning land in Russia as a foreigner I recommend you also read my blog post about restrictions to foreign land ownership in Russia.

In Russia, agriculture is one of the largest sectors of the economy. Plant cultivation is considered the leading direction, accounting for the majority of agricultural production. Among the main cultivated crops, we can highlight: grains; potatoes; soybeans; vegetables.

The Russian government has aimed to stimulate farming in Russia for many years. One way it tried to do this was with the help of a special tax regime: the Unified Agricultural Tax.

In this article, we wanted to discuss who can apply this tax regime, what limitations exist, and most importantly, the advantages of applying such a tax.

On This Page

What Tax Systems Exist in Russia

Unified Agricultural Tax (UAT)
List Of Products To Which The UAT Can Be Applied
Restricted Products Under The Unified Agricultural Tax
These Are The Entities That Cannot Apply The Unified Agricultural Tax:
Reselling Agricultural Produce Doesn’t Qualify As An Agricultural Activity
Maximum Number of Employees on this Tax Regime
Which tax rates do individual entrepreneurs (IEs) and organizations pay when applying the Unified Agricultural Tax (UAT)?
The Tax On The Property Of Agricultural Producers
Value Added Tax (VAT) For Agricultural Producers
Exemption Of VAT under UAT
Negative Aspects Of Applying The Unified Agricultural Tax (UAT)
Positive Aspects Of Applying The Unified Agricultural Tax (UAT):

Conclusion

What Tax Systems Exist in Russia

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At the start, all companies and entrepreneurs must choose a tax system according to which they will pay taxes and insurance contributions. This choice determines the number and size of payments, as well as their frequency. Therefore, it is important at the very beginning to understand which tax regimes are suitable for the company or entrepreneur and which will be the most advantageous for them.

In Russia, there are six tax systems:

General taxation system – GTS;
Simplified taxation system – STS;
Single agricultural tax – SAT;
Patent taxation system – PTS;
Personal income tax – PIT;
Automatic taxation system – ATS.

Under any tax system, if a company or individual entrepreneur has employees, the employer pays personal income tax (13% of the employee’s income) and contributions to the funds. Have a look at this blog post for an overview of what it costs to hire an employee in Russia.

The General Taxation System (GTS)

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The GTS is a universal system that can be used by all entrepreneurs and companies without restrictions. The general regime is automatically established for all companies and individual entrepreneurs if they have not chosen another one. The main taxes under the GTS are VAT, corporate income tax for legal entities, personal income tax for individual entrepreneurs, and property taxes.

VAT: 0% – when selling goods for export ; 10% – for the sale of food products, children’s goods, periodicals, and medical products; 20% – in all other cases.

Corporate income tax: For Limited Liability Companies – 20%, taxable income reduced by expenses. Individual entrepreneurs do not pay corporate income tax.

Property taxes (if such property exists): Property tax, land tax, vehicle tax. Tax rates are set by the laws of the Russian Federation subjects. For example, the average property tax rate is 2%, but in some regions, it may be lower.

The Simplified Taxation System (STS)

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USN is a special tax regime designed for small and medium-sized businesses. The tax burden under it is significantly lower than under the GTS.
Companies cannot apply STS if:

  • The share of participation of other organizations exceeds 25%;
  • The company has branches;
  • Companies and individual entrepreneurs engaged in certain types of activities, such as banks, insurers, non-state pension funds, pawnshops, investment funds.

Who can apply STS?
Companies with annual income not exceeding 164.4 million rubles, and an average staff of no more than 100 people.

Under the STS, a general tax is paid, which replaces:

  • Corporate income tax for companies, personal income tax for individual entrepreneurs;
  • VAT on domestic operations;
  • Property tax for organizations based on the average annual value, for individual entrepreneurs – property tax on real estate used in business.
    The calculation method and rate of tax depend on the chosen object of taxation. Under the USN, there can be two:
  • Revenues – 6%;
  • Revenues reduced by expenses – 15%.

Companies and individual entrepreneurs under STS do not have to pay property tax. It doesn’t matter when or how commercial real estate was purchased – if an entrepreneur works with it, there is no need to pay tax. However, a special statement must be submitted to the tax authority regarding such real estate. Exemption from property tax does not apply if the property is included in the list of real estate subject to property tax based on cadastral value. This includes buildings and premises intended for offices, shops, catering establishments, household services. Each year, the authorized body compiles a list of such exceptions and publishes it on official websites accessible on the internet.

The Patent Tax System (PTS)

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The PTS entails entrepreneurs acquiring a patent—a right to conduct a specific type of activity. The entrepreneur pays a fixed amount based on the duration of the patent’s validity.

Who can apply the PTS? Individual entrepreneurs who meet the established restrictions and who have filed a patent application. Limits and restrictions include:

The number of employees—not exceeding 15 people.
Annual income—not exceeding 60 million rubles.
Individual entrepreneurs engage in a specific type of activity—the complete list of activities eligible for the PTS in the taxpayer’s region is outlined in a special law. This list is quite extensive, but here are a few examples: photography services, written and oral translation services, computer software development, production of bakery and pastry products, and many others.
What taxes do individual entrepreneurs applying the PTS pay? Under the PTS, entrepreneurs only pay for the cost of the patent. It replaces personal income tax, VAT on domestic transactions, and property tax on real estate used in activities covered by the patent.

Tax On Professional Income (TPI)

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TPI is a special tax regime for individuals without registering as individual entrepreneurs.

Conditions for applying TPI:

No employees working under an employment contract.
Annual income not exceeding 2.4 million rubles.
Additionally, certain types of activities are prohibited under TPI, such as mining and selling minerals or resale of goods.

What taxes are paid and when. Under this regime, individuals pay a single tax on professional income. TPI rates:

4% if the income is received from individuals.
6% if the income is received from legal entities.

We have also briefly discussed this tax regime in our blog post on working with a Russian freelancer from abroad.

Automatic Taxation System (ATS)

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ATS is an experimental tax regime for small businesses. Until December 31, 2027, it is only applicable in Moscow and the Moscow region, the Republic of Tatarstan, and the Kaluga region.

Who can apply ATS:

Legal entities or individual entrepreneurs who meet a set of requirements and have submitted the appropriate notification to the tax authorities.

Conditions for applying ATS:

  • Number of employees: no more than 5.
  • Annual income: not exceeding 60 million rubles.
  • Employee salaries: not more than 5 million rubles per person per year.
  • Residual value of company’s fixed assets: not exceeding 150 million rubles.
  • Shareholding of other organizations in the company’s charter capital: not more than 25%.
  • Salaries are paid only in non-cash form.
  • The current account is opened in an authorized bank.
  • No branches or separate units.
  • The taxpayer does not apply other special tax regimes.

Under ATS, taxpayers pay a general tax. Similar to the UTII, the tax rate depends on the chosen object of taxation – “Income” or “Income minus Expenses”.
The rate for the “Income” object is 8%, and for the “Income minus Expenses” object, it is 20%.

Unified Agricultural Tax (UAT)

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Who can apply the Unified Agricultural Tax?

The Unified Agricultural Tax can be applied by organizations and individual entrepreneurs engaged in agricultural production, as well as those providing services to agricultural producers in the field of crop and livestock farming. Agricultural producers are recognized as organizations and individual entrepreneurs engaged in agricultural production, conducting its primary and subsequent (industrial) processing, and selling this production.

Agricultural products are products of crop production of agriculture and forestry, livestock products that have undergone technological processing to preserve quality and ensure long-term storage, used as raw materials in subsequent (industrial) processing, or sold to consumers without further processing.

List Of Products To Which The UAT Can Be Applied

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The list of agricultural products is defined in the Resolution of the Government of the Russian Federation, which includes:

  • Grains (wheat, barley, oats, corn, rice) and leguminous crops (peas, beans, chickpeas, and soybeans)
  • Cotton and flax, peanuts, sunflower, sugar cane, sugar beet, tobacco, etc.
  • Fruit, grapes, perennial crops, and floriculture products
  • Livestock, pig, sheep, and goat products
  • Poultry products
  • Horse, donkey, and mule products (including horses)
  • Reindeer and camel products
  • Rabbit breeding, fur farming
  • Fish farming, beekeeping, sericulture, artificial insemination
  • Other livestock products
  • Commercial fishery products

Restricted Products Under The Unified Agricultural Tax

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Excise goods cannot be traded. However, exceptions include grapes, wine, sparkling wine (champagne), wine materials, and grape must from own production.

These Are The Entities That Cannot Apply The Unified Agricultural Tax:

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  • Companies and individual entrepreneurs that do not produce agricultural products but only process them.
  • Companies and individual entrepreneurs that produce excisable goods, except for grape producers and producers of wine products made from their own grapes.
  • Representatives of the gambling industry.
  • State-owned, budgetary, and autonomous institutions.

Reselling Agricultural Produce Doesn’t Qualify As An Agricultural Activity.

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If an organization or individual entrepreneur engages in reselling rather than production of agricultural products, they are ineligible for this tax regime.

Another important condition is that at least 70% of the income should come from the sale of their own agricultural products, products of primary processing, or from providing auxiliary services to other agricultural producers. To calculate this percentage correctly, you can use the following formula:

Income from own agricultural products : Total revenue X 100%

If the share is 70% or more, you meet the requirement for operating under this special regime.

Maximum Number of Employees on this Tax Regime

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Additionally, the average number of employees in the company must not exceed 300.

Which tax rates do individual entrepreneurs (IEs) and organizations pay when applying the Unified Agricultural Tax (UAT)?

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The Unified Agricultural Tax (UAT) replaces the corporate income tax and property tax on real estate used in agriculture.

The general rule is that the UAT rate is 6%.
The formula for calculating the UAT is as follows: UAT amount (advance tax payment) = tax base × tax rate.
The tax base is calculated as follows: income received during the year (or half-year) – expenses incurred during the year (or half-year).

Russia has numerous regions, which can be broadly categorized into republics, territories, regions, federal cities, and autonomous districts. These regions have different rights and obligations, affecting their political, economic, and social structures. For instance, in one region, the tax rate may differ from another due to a decision by authorities to lower the rate to attract farmers.

Below is a table indicating the regions where the agricultural tax rate is lower than the standard rate. In all other regions, the standard rate applies.

In the table below, regions marked with an asterisk (*) indicate that such a rate applies only to residents of that territory.

The Unified Agricultural Tax is paid by the taxpayer as follows:

  • By July 28th: Advance payment for the first half of the year.
  • By March 28th of the following year after the tax period: The remaining amount of the unified tax minus advance payments.

The Tax On The Property Of Agricultural Producers

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Entrepreneurs using the Unified Agricultural Tax (UAT) are exempt from paying property tax. However, there are exceptions.

Starting from 2018, only property directly involved in agricultural activities is exempt from taxation. This includes assets used in the production, processing, and sale of agricultural products or in the provision of services to other agricultural producers. Previously, such a provision was not specified.

Property of agricultural producers can be divided into two groups. One is directly used for production, such as tractors, seeding equipment, etc. The other is auxiliary, including warehouses, garages, etc. The exemption from tax applies to both groups. However, the exemption does not apply to office spaces, dormitories, administrative buildings, and similar real estate properties.

Example of property tax calculation:
A company owns a warehouse with a cadastral value of 5,000,000 ₽. The tax rate in the region is 2%. Each quarter and at the end of the year, the company will pay: 5,000,000 × 2% / 4 = 25,000 ₽. If the company applies the UAT, the warehouse will be considered agricultural property used for production, and the company will be exempt from paying this tax.

Value Added Tax (VAT) For Agricultural Producers

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Starting from January 1, 2019, agricultural producers under the special regime are required to pay value-added tax (VAT) to the budget. This obligation was established by Federal Law No. 335-FZ of November 27, 2017, amending the Tax Code. Previously, the Tax Code of the Russian Federation provided for VAT exemption for UAT taxpayers. The exception was the tax paid to the budget upon importation of imported products. Now, companies and individual entrepreneurs (IEs) under the UAT must process all necessary documents as VAT taxpayers.

Exemption Of VAT under UAT

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Companies under the UAT have the right to be exempt from VAT payment when applying the UAT. This is possible in the following situations:

For new companies, the notification of exemption from VAT and notification of commencement of work under the special regime apply to the same calendar year. If a new organization does not switch to the UAT immediately, it will have the right to claim VAT exemption three months after becoming an ordinary taxpayer. For existing companies, compliance with the revenue norm for agricultural activities. For example, to qualify for VAT exemption in 2023, the revenue without tax in 2022 should not exceed 60 million rubles per year.

Thus, if the revenue limit is not exceeded, the company is exempt from paying value-added tax.

Negative Aspects Of Applying The Unified Agricultural Tax (UAT)

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1) It is not possible to trade in excisable goods under this tax regime, (with exceptions such as grapes, wine, sparkling wine (champagne), wine materials, and grape must from own grape production.)
2) If the right to use the UAT is lost, which can occur in case of violations such as:

  • For instance, if a company ceases to produce goods and begins to resell them.
  • If the condition requiring at least 70% of income to come from the production of agricultural products is not met.

In such cases, the tax authority will recalculate the tax under the general system from the beginning of the year.

Positive Aspects Of Applying The Unified Agricultural Tax (UAT):

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  • Low tax rate: The UAT replaces taxes such as corporate income tax and property tax on real estate used in agriculture, which can significantly reduce company expenses.
  • Exemption from property tax payment if such property is used in agricultural production activities.
  • Tax payment is required every 6 months, compared to other tax systems where it’s every quarter (every three months).
  • There is no income limit, as in other tax systems. The amount of revenue is important if you want to apply for VAT exemption. Then you need to monitor the volume of revenue.


Conclusion

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With its many different special tax regimes, Russian business may seem daunting and confusing to some foreigners. With proper guidance from our specialists, you will, however, be able to take well informed decisions and be able to abide by the law and pay less taxes than in other countries.

Feel free to contact us regarding any questions you may have about doing business in Russia.

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