Russia makes simplified-tax-system businesses VAT payers from 1 January 2025, with 5% and 7% rates

What changed in detail

Federal Law No. 176-FZ of 12 July 2024, officially published on 12 July 2024, amends Part Two of the Tax Code. Article 2, items 1 to 26, apply from 1 January 2025.

Until then, organisations and individual entrepreneurs on the simplified tax system (USN) were not VAT payers on domestic supplies. From 2025 they are, subject to two rules:

• Automatic exemption. A new paragraph in art. 145(1) exempts a USN taxpayer from VAT where its USN income for the preceding year did not exceed RUB 60 million in aggregate.
• Special rates. A new art. 164(8) lets USN taxpayers above the exemption tax their supplies at 5% while income does not exceed RUB 250 million, or at 7% while it does not exceed RUB 450 million, instead of the general 20% and 10% rates. Input VAT is not deductible on supplies taxed at 5% or 7%. A seller applying these rates states 5% or 7% in the contract and primary accounting document.

USN taxpayers that choose the general rates keep the ordinary right to deduct input VAT.

What it means

USN taxpayers have been inside the VAT system since 1 January 2025, and that remains the rule. The thresholds have since moved. Federal Law 425-FZ cut the RUB 60 million exemption to RUB 20 million for 2025 income, with steps to RUB 15 million and RUB 10 million, and raised the general rate the alternative is measured against from 20% to 22% from 1 January 2026. Federal Law 228-FZ, in force since 4 July 2026, then held the exemption at RUB 20 million through 2028. The RUB 60 million figure in this law is therefore spent: check the threshold against the current Article 145 schedule, not this one.