The general taxation system

The general taxation system (GST) is the basic tax regime that does not require specific switching. If a business has not informed the tax authorities about switching to any special regimes (for example, the simplified taxation system or the single agricultural tax), it remains in the standard regime automatically. Companies and sole proprietors who no longer meet the criteria for special regimes are also transferred to the general tax regime.

The main benefit of the general regime is the absence of limitations. The simplified system has limitations on types of activity, income, number of employees, and value of fixed assets. Under the standard regime, a business may carry out any legally permitted activities, employ any number of workers, and not monitor income and fixed asset values. The main drawbacks are the high tax burden and extensive reporting requirements.

Companies pay the following taxes:

•  Value added tax (VAT – 0%, 10%, and 20%, depending on the type of activity)

•  Income tax (at 20%)

•  Personal income tax for employees (at 13% for residents, 30% for non-residents)

•  Property tax (if applicable)

•  Insurance premiums

The procedure for tax and contribution payments based on the general taxation system:

The single tax payment allows companies and sole proprietors to make tax and insurance premium payments through a single account. The  STP includes the total amount due for taxes and contributions. Companies and sole proprietors deposit funds into their tax account, which the tax authority then distributes independently.

Procedure for working with STP:

1. Companies and sole proprietors deposit funds to their STP account, calculating total amounts themselves. Funds can be deposited in installments throughout the year.
2. Payment is due on the 28th of each month.
3. Companies and sole proprietors notify the tax authority of the amounts calculated – in tax returns or through notification. The deadline for submitting the notification is no later than the 25th day of the payment month.
4. The tax authority debits money from taxpayers’ accounts and distributes it in accordance with the taxpayers’ obligations.

Reporting when using the general tax system.

The reporting process for companies and sole proprietors under the general tax regime differs slightly:

1. Companies under the general tax regime must submit the following reports:

• accounting statements,
• tax returns,
• reports to the relevant fund.

2. Sole proprietors are not required to maintain accounting records and therefore only submit tax returns and reports to the relevant fund.

Companies’ accounting statements include:

– balance sheets,

– financial statements for all companies,

– cash flow statements for large and medium-sized companies.

These documents must be prepared for the entire fiscal year (from 1 January to 31 December) and submitted to the tax authority no later than 31 March of the following year.

The tax return of companies includes:

• Declarations:

     – VAT is filed quarterly

     – invoice accounting bookkeeping is done quarterly, if required

     – for indirect taxes on imports from the Eurasian Economic Union, reporting is done at        the end of each month

     – income tax return is submitted based on the results of the first quarter, six months,  nine months, and a year

     – property tax is reported once a year

• Tax Information

• Calculations:

– monthly income tax for employees is calculated according to the results of the first quarter, half-year, nine-month, and year

– insurance premiums (RSU) are calculated according to results of the first quarter, six-month, nine-month and year.

Thus, a general tax regime is applied to all companies and sole proprietors upon registration. To apply for special regimes, it is necessary to submit a relevant application. Mainly, VAT and income taxes at a rate of 20% are payable on the general tax regime. In addition, a number of other taxes and fees are levied.

General taxation system is particularly advantageous if a company plans to do business with large enterprises, for example, engage in wholesale trading or cooperate with major network companies. Large enterprises usually operate on general taxation system because of limits and select contractors and suppliers who also operate on the same basis in order to claim a VAT deduction. The general taxation system is also beneficial for companies involved in the importation of goods into Russia, as it allows for a tax deduction on VAT paid at the customs.