Transition from PSN to USN in 2026: New Rules, VAT, and Tax Relief for Individual Entrepreneurs

In 2026, important amendments to tax legislation will come into force, directly affecting individual entrepreneurs. These changes relate to the transition from the Patent Taxation System (hereinafter — PSN) to the Simplified Taxation System (hereinafter — USN), specifics of income calculation, and updated rules for Value Added Tax (VAT) compliance.

The amendments are aimed at reducing the overall tax burden and simplifying the transition period for small businesses that have lost the right to use the patent regime or are changing their taxation system.

Transition from PSN to USN from the Beginning of the Tax Period: How It Works

One of the key innovations is the possibility to switch to the USN from the beginning of the tax period, which was previously not allowed.

Under the general rule, taxpayers must submit a notification before the start of the calendar year to apply the USN. However, the legislator now introduces an exception for a specific category of entrepreneurs.

Eligible taxpayers:

• Individual entrepreneurs who applied PSN in December 2025 (the patent must have been valid during this period)
• Entrepreneurs who did not combine PSN with USN
• Entrepreneurs whose annual income exceeded 20 million RUB

Such taxpayers are automatically deemed to have switched to the general taxation regime as of 1 January 2026, which results in VAT obligations and more complex accounting requirements.

Individual entrepreneurs will be able to switch to the USN from 1 January 2026, provided they submit a notification no later than 1 June 2026.

This measure allows taxpayers to recalculate taxes for the already elapsed period and choose a more beneficial regime. From a practical perspective, this is particularly relevant for businesses with low profit margins, where the general regime may lead to a significant increase in the tax burden.

Change of USN Tax Object: Additional Opportunities

In addition to the transition to the USN, entrepreneurs are granted another optimisation tool — the ability to change the tax object.

Under the USN, taxpayers may choose between:

• “Income” (generally 6% rate)
• “Income minus expenses” (generally 15% rate)

Previously, changing the tax object was only possible from the beginning of the next calendar year, provided a notification was submitted by 31 December. The new rules introduce an exception.

What has changed:

• The tax object may now be changed
• The deadline for submitting a notification is 1 June 2026

According to clarifications from the Ministry of Finance of the Russian Federation, the change may apply to the entire 2026 tax period.

This allows entrepreneurs to adjust their taxation model based on the actual structure of income and expenses, even after the year has started.

VAT Exemption under USN: Clarification of Income Composition

Since 2025, a VAT exemption mechanism has been in place for USN taxpayers, subject to certain income thresholds.

Income thresholds:

• 20,000,000 RUB — for 2025
• 15,000,000 RUB — for 2026
• 10,000,000 RUB — from 2027 onwards

If income exceeds the established limits, the right to VAT exemption is lost.

Key clarification:

When calculating income, interest income from bank deposits is now excluded, provided that the total income of the entrepreneur for 2025 does not exceed 60,000,000 RUB.

This rule also applies to individual entrepreneurs who lost the right to use PSN and switched to USN.

VAT During Transition: Treatment of Advance Payments

A separate issue concerns taxation of advance payments.

A common scenario is the following:

• in 2025, an entrepreneur receives an advance payment without being a VAT payer
• in 2026, the delivery of goods or services takes place, and VAT must be charged

This situation may create an additional tax burden, as VAT is paid from the entrepreneur’s own funds.

Under the new rules, an individual entrepreneur or organisation is entitled to reduce USN income by the amount of VAT paid, provided that:

• VAT was not charged to the customer
• the customer did not reimburse the VAT amount

The reduction is applied in the period when the supply is made.

It is important to note that although the advance payment was received earlier, the VAT liability arises at the time of delivery. The new rule allows this burden to be taken into account when calculating USN tax.

Overall, the 2026 amendments create a more flexible and predictable framework for transitioning from PSN to USN. Entrepreneurs are granted the opportunity to apply the USN from the beginning of the tax period, choose the most appropriate tax object based on actual business performance, and reduce the tax burden through updated income calculation rules and VAT treatment in transitional operations.

As a result, the risk of a sharp increase in tax liabilities upon losing the patent regime is reduced, and the transition to the USN becomes a more manageable and economically reasonable tool for small business.