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As Russian Ministry of Communications reports, companies working in the field of software development are subject to preferential tax treatment when it comes to paying social contributions. Corresponding state regulation was signed by Russian President Dmitry Medvedev in October.
ICT companies like Auriga, with headcount of at least 50 employees, will pay the flat rate of 14% in social contributions, provided that 90% of their revenue is generated from software development activities.
Up to the end of year 2009, the companies paid so-called unified social tax, until it was replaced by direct insurance contributions to the Social Insurance Fund and Federal and Territorial Medical Insurance Fund by a new regulation that came into effect on January 1, 2010. The new tax rules stated that (apart from certain exceptions – such as educational organizations) the companies were to pay a flat rate of 26% - which was higher than the abolished unified social tax. This new rate was to be increased further - to 34% starting from 2011.
The prospect of paying a 34 % tax caused a real upheaval among small and big Russian IT market players alike. Many industry leaders noted that this could have killed Russian software development industry, as even larger software companies would struggle to pay the new tax, in the business field that traditionally has been the one with the highest personnel-related expenses. According to experts, personnel-related expenses in Russian IT may constitute up to 80%, compared to the average 13% or 4% in the oil&gas industry. It is no surprise that during 2009 a number of appeals to government were written, heated meetings and rigorous negotiations were held between the Russian IT community and government bodies. The letter to Dmitry Medvedev of August 2009 that revived the process was signed by 15 industry leaders including Auriga President Alexis Sukharev.
After significant debates, the Ministry of Communications started an initiative to review corresponding tax policies, and finally, decision was made to lower the social contributions rate for software developers to 14% - up to year 2020. We are definitely pleased to pay tribute to the consolidated efforts of Russian IT industry players, and in particular would like to note the profound role in this process that was played by the RUSSOFT association, of which Auriga’s General Manager Andrei Pronin is a board member.
In 2010 the social contributions will be paid directly to the Pension Fund, and later split between payments to Pension Fund, Social Insurance Fund and Federal and Territorial Medical Insurance Funds. The Ministry of Communications also reported that it is working on further measures to stimulate the development of Russian IT industry, in particular, its presence on the global market and development of innovative projects.