What Taxes and Insurance Contributions Should an Individual Entrepreneur (IE) Pay?
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| What Taxes and Insurance Contributions Should an Individual Entrepreneur (IE) Pay? |
Individual Entrepreneurs (IE) in Russia have to navigate a range of taxes and insurance contributions depending on the chosen taxation system. Below is a breakdown of the key obligations.
General Taxation System (GTS)
The General Taxation System (GTS) is the default option for individual entrepreneurs who do not switch to another regime. Under GTS, IEs are required to pay the following taxes:
1. Personal Income Tax (PIT):
- 13% on profits, except for specific income types.
- 15% on income exceeding RUB 5 million.
- Entrepreneurs can reduce taxable income by deducting business expenses. If documentation is lacking, a professional deduction of 20% applies. Taxpayers can also utilize other personal deductions, such as those for housing, education, or medical expenses.
2. Value-Added Tax (VAT):
0%, 10%, or 20%, depending on the goods and services. VAT is paid quarterly, with the total amount split into three monthly payments. Entrepreneurs may qualify for VAT exemption if their turnover (excluding VAT) doesn't exceed RUB 2 million over the past three months.
Simplified Taxation System (STS)
Entrepreneurs can opt for the Simplified Taxation System (STS) by notifying the tax authorities. Eligibility requirements include having no more than 100 employees, an income not exceeding RUB 150 million, and fixed assets valued at no more than RUB 100 million. Under STS, entrepreneurs have two options:
- 6% on all income: The rate increases to 8% if the business employs between 100-130 people, or if the income exceeds RUB 150-200 million.
- 15% on the difference between income and expenses: The rate increases to 20% if the business exceeds the eligibility thresholds.
Note: Entrepreneurs using STS can reduce their tax liabilities by the amount of insurance contributions paid.
Patent Taxation System (PTS)
The Patent Taxation System (PTS) is available for specific business activities, such as tailoring, hairdressing, and dry cleaning. Entrepreneurs with fewer than 15 employees and an annual turnover not exceeding RUB 60 million can purchase a patent. The patent’s cost is determined by local authorities based on average income in the relevant sector.
Unified Agricultural Tax (UAT)
The Unified Agricultural Tax (UAT) is suitable for those involved in agricultural production and sales. The tax is 6% on net income (revenue minus expenses and losses). Payment is due in two stages: an advance payment by July 28 and the final payment by March 28 of the following year.
Automated Simplified Taxation System (ASTS)
This experimental system is available in select regions, including Moscow and Tatarstan. It offers simplified tax rates of 8% on income or 20% on the difference between income and expenses. IEs on ASTS are not required to pay insurance contributions for employees, except for accident insurance, and no tax returns are necessary as the tax authorities handle calculations.
Professional Income Tax (PIT for the Self-Employed)
Self-employed individuals without employees can pay a 4% tax on income from individuals and 6% on income from businesses. The annual income limit for this regime is RUB 2.4 million.
Insurance Contributions for IEs
Individual entrepreneurs, except for those on ASTS or registered as self-employed, are required to make insurance contributions. In 2024, this amounts to RUB 49,500. If income exceeds RUB 300,000, an additional 1% contribution is required. The maximum contribution is capped at RUB 277,571.
Taxes and Contributions for Employees
If an IE employs workers, they must pay:
- Personal Income Tax (PIT): 13% of employee income, withheld from their salary.
- Insurance Contributions: 30% on income up to RUB 1.917 million and 15.1% on amounts exceeding this threshold. Additional contributions for workplace accidents range from 0.2% to 8.5%.
Other Taxes
Entrepreneurs remain liable for personal taxes, including:
- Property Tax: Up to 2.2% depending on the region.
- Transport and Land Taxes: Rates vary locally.
Payment Process
From 2023, Russia introduced a unified tax payment system. All taxes and contributions are paid into a single account, with the tax authorities managing the distribution.
Final Thoughts
The taxation and contribution landscape for individual entrepreneurs in Russia is complex and depends on the chosen system and specific business activities. Entrepreneurs should stay informed and seek professional advice to ensure compliance and optimize their tax liabilities.