Russia

RU-4:Tax reforms for EE improvements (Federal Tax Code, Federal Law No. 132-FZ)

Policy Description

On 7 June 2011, the Federal Law No. 132-FZ was signed, which introduces several significant changes in tax rules. The most significant change introduced by this new law is the promotion of investments in R&D and energy efficient equipment through property and income tax credits, and accelerated depreciation.

Under this new Law property tax benefits are granted for assets with a high level of energy efficiency. Companies that buy energy efficient equipment may be exempt from property tax for up to three years.

Description

On 7 June 2011, the Federal Law No. 132-FZ [3] was signed, which introduces several significant changes in tax rules. The most significant change introduced by this new law is the promotion of investments in R&D and energy efficient equipment through property and income tax credits, and accelerated depreciation [1], [4].

 

Property tax exemptions

Under this new Law property tax benefits are granted for assets with a high level of energy efficiency. Companies that buy energy efficient equipment may be exempt from property tax for up to three years.

 

Income tax credits

The new Law has thoroughly revised the R&D expense tax accounting procedure. Investment tax credits can be allocated to organisations that carry out R&D or modernise their production in order to increase environmental protection and/or improve energy efficiency of their production.

An investment tax credit (for periods of 1 to 5 years) for income tax is given on the loan amount, representing 100% of the equipment.

The organisation that receives an investment tax credit may reduce its payments on the relevant income tax during the term of the agreement on the investment tax credit, but not exceeding 50% of the tax payments. The interest on the loan is equivalent to ½ - ¾ of the refinancing rate of the Russian Federation.

 

Accelerated depreciation

From January 1 2009, businesses are allowed to use the accelerated depreciation on new equipment. Assets with lifetime between 3 to 20 years can be depreciated for a third of their value in the tax period when it was acquired (in 2008 the threshold was 10%). The amount of interest that can be deducted from taxable income has been increased nearly one-half, to 19% for loans in Russian rubles (against 13.2% in 2008) and to 22% for loans nominated in the foreign currency (in 2008 - 15%) [1].

Policy Information Expand this section for information on the key features of the policy, such as its date of introduction, categorization, main objective(s) and linkages with other policies.

Policy Categorisation

Policy Instrument Type: Economic, Incentives & Subsidies

Position in the Pyramid

About Us

Participation: Voluntary

Period

Start Date: 2011

Policy Linkages

Supports Federal law on energy conservation and energy efficiency Effort Defining

Agencies Responsible

Ministry of Economic Development

Primary Objective: Energy

Objective

- Tax system modernization - EE technology deployment - Market transformation

Target Group

Residential/commercial, industry and government sectors

Driver of energy consumption or emissions affected by policy: Relative Efficiency, Rate of change, Technology implementation rate.

Implementation Information Expand this section for information on targets, monitoring, verification and enforcement regimes, and implementation requirements and tools.

Coverage

70 % of all energy consumers (including industry) could benefit from the programme.

Quantitative Target? no

Progress Monitored? yes

Verification Required? no

Enforced? yes

Sanctions: n/a

Requirements on the Target Group

  • Determine R&D costs that are eligible for tax incentives
  • Assess the feasibility of creating provisions for future R&D expenses for tax purposes (taxpayers have the right to establish reserves for future expenses on R&D since January 2012), and develop a method for creating such provisions, including special regulation of accelerated deprecation for best available and sector-specific equipment.

Support by Government

  • Provision of guidelines for preparing the required project reports on eligible and implemented R&D and EE projects
  • Provision of guidelines for accounting expenses related to the R&D and EE and preparing tax registers that meet the new requirements

Implementation Toolbox

  • The Law provides a formula for calculating the maximum size of the tax breaks
  • Special guidelines for R&D completion report to the tax authorities (This report is submitted together with the final tax return for the relevant tax period when the R&D work (work stage) was completed)

Complexity of Implementation

Government

Some potentially unclear calculation mechanisms that could result in difficulties in determining tax refund amounts.

Target Group

Complex procedure of tax refund.

Impacts, Costs & Benefits Expand this section to find information on policy effectiveness and efficiency.

Impact Quantitative Estimate Qualitative Estimate
Estimated effect on energy consumption or emissions n/a n/a
Estimated costs/benefits for industry n/a n/a
Estimated cost for government n/a n/a

References & Footnotes

References

[1] http://www.russianlawonline.com/content/tax-incentives-energy-efficiency (Tax incentives for energy efficiency overview, Russian Law Online magazine, publication)

[2] http://www.pwc.ru/en/tax-consulting-services/legislation/izmeneniya-v-nalogovyi-kodeks-rf-zakon-132-fz.jhtml (Changes to the Russian Tax Code, analytical research by PWC, publication)

[3] http://www.consultant.ru/online/base/?req=doc;base=LAW;n=114836 (Federal Tax code corrections, in Russian)

[4] http://buh7.ru/articles/499 (Comment on the Federal Law No. 132-FZ)

Footnotes

(*1) Complexity of implementing the policy for both government and the target group. Distinguishing three rough categories (low, medium, high transaction cost or complexity). In part this is determined by the type of policy instrument (e.g. a energy tax is less complex than a cap-and-trade system), in part by policy specifics (e.g. a voluntary agreement with a target defined as an annual efficiency improvement rate is less complex than one based on a benchmarking approach). Indicate main cause for low/medium/high.