On 6 March 2020, the Federal Law amending Articles 346.43 and 346.45 of Part Two of the Tax Code of the Russian Federation enters into force.
These amendments expand the list of types of business activity to which the patent taxation system applies: the list now includes individual entrepreneurs engaged in livestock farming and crop farming.
Given the large number of questions about the essence of the patent taxation system and its advantages and disadvantages, and the limited amount of clear and accessible information, I consider it timely and necessary to examine these questions in more detail:
1. THE PATENT TAXATION SYSTEM
— is a special tax regime under which no tax return is filed, and the tax is calculated when paying for a special document — the patent.
The transition of individual entrepreneurs to the patent taxation system, or their return to other taxation regimes, is voluntary.
2. WHO IS ENTITLED TO APPLY THE PATENT TAXATION SYSTEM
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only individual entrepreneurs may switch to the patent taxation system! Accordingly, the legislative changes will in no way affect personal subsidiary farms (LPKh), whose activity is recognised by current legislation as non-commercial, nor farms operating through an LLC or other forms of legal entity.
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the average number of hired employees of the individual entrepreneur must not exceed 15 persons over the tax period
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the taxpayer's income from all types of business activity to which the patent taxation system is applied must not exceed 60 million roubles per year.
3. ADVANTAGES OF THE PATENT TAXATION SYSTEM
a) Applying the patent taxation system provides for exemption from the obligation to pay:
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Personal income tax — in respect of income received from the types of business activity to which the patent taxation system is applied
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Personal property tax — in respect of property used in the types of business activity to which the patent taxation system is applied
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VAT
b) No need to file a tax return or submit accounting statements: individual entrepreneurs who have switched to the patent taxation system need only keep an income ledger, in which all income received from business activity to which the PSN (patent taxation system) is applied must be recorded.
c) The option of switching to the PSN at any time during the calendar year: at the individual entrepreneur's choice, the period may be from one to twelve months inclusive within a calendar year. This is very convenient for entrepreneurs engaged in seasonal work.
d) The option of combining several taxation regimes
4. DISADVANTAGES OF THE PATENT TAXATION SYSTEM
The main disadvantage of the patent system is, of course, the limit on the number of hired employees, which must not exceed 15 persons over the tax period.
5. PROCEDURE FOR SWITCHING TO THE PATENT TAXATION SYSTEM
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To obtain a patent, the individual entrepreneur must submit an application for a patent to the tax authority
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The application for a patent must be submitted no later than 10 days before the start of applying the patent taxation system:
When carrying on activity at the place of residence: the application is submitted to the tax authority at the place of residence
When carrying on activity in a municipality where the entrepreneur is not registered with the tax authorities: the application is submitted to any territorial tax authority of the municipality where the individual entrepreneur plans to carry on business activity
6. STEP-BY-STEP INSTRUCTIONS FOR APPLYING THE PATENT TAXATION SYSTEM
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Submit the application: 10 days before starting business activity, submit to the tax authority an application to switch to the patent taxation system
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Obtain the patent: within 5 days of receiving the application for a patent, the tax authority is obliged to issue the patent to the individual entrepreneur
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Pay the tax
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Tax accounting: income from sales is recorded in the income ledger of the individual entrepreneur applying the patent taxation system.
7. PROCEDURE FOR CALCULATING THE TAX
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The tax base is the monetary value of the annual income potentially obtainable by an individual entrepreneur from the type of business activity to which the patent taxation system is applied, as established for the calendar year by a law of the constituent entity of the Russian Federation.
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Tax rate: 6%
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Accordingly, the cost of the patent is calculated using the following formula:
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Amount of tax = (tax base / 365 (366) days X number of days for which the patent is issued) X 6%
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In addition, the procedure for paying for the patent also depends on its period of validity:
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If the patent is valid for less than 6 months, the full cost of the patent must be paid no later than the date on which the patent expires
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If the patent is valid for 6 to 12 months, 1/3 of the tax amount must be paid no later than ninety calendar days after the patent takes effect, and 2/3 of the tax amount no later than the date on which the patent expires
The most convenient way to find out the cost of a patent for a specific type of business activity is the automated electronic service on the official website of the Federal Tax Service: