Maxima Legal lawyers have analysed for Forbes the abolition of special tax regimes for jewellery business

Nikita Deynega — Partner Sergey Tarasevich

On 9 March 2022, the President of the Russian Federation signed a law abolishing special tax regimes for jewellery business. Starting from January 1, 2023, all companies involved in the manufacturing of jewellery, including niche brands, workshops and retail outlets, will be required to switch to the common system of taxation. According to the Russian Ministry of Industry and Trade, the measure is designed to “prevent the use of investment bars purchased without payment of VAT in the production of jewellery,” as well as to eliminate fraudulent schemes which exist in the market.

Nikita Deynega, Head of Tax and Administrative Law Practice at Maxima Legal, and Sergey Tarasevich, associate of the practice, told Forbes magazine about the implications of the law for small jewelry business.

In particular, Nikita Deynega pointed to the inevitable and considerable rise in costs for production of jewelry first of all, due to the tax burden. “Legal entities and individual entrepreneurs working under the simplified tax system are exempt from VAT and pay a single tax – 6% of revenue or 15% of the difference between revenue and expenses. The rates may differ depending on the region and the field of activity. For example, in Moscow an entrepreneur in the manufacturing sector (which includes jewellery manufacturers) pays 10% on the difference between income and expenditure instead of 15%. Under the common system of taxation, a company is liable to pay several taxes: VAT (20%) and corporate income tax (20%) if it operates through a legal entity, while if it is a sole proprietorship, the VAT rate is 20% and personal income tax rate is 13-15%”, the expert explained.

Analyzing the adopted law, Sergey Tarasevich also pointed to the growth of administrative costs in the transition to the common system of taxation. “This [the transition to the common system of taxation] means an automatic increase in administration costs, as well as potential fines for violations that may be committed in the period of adaptation to the new conditions [for example, for missing the deadline for submission of declarations or incorrect calculation of VAT payable],” stressed the expert.

To read the full article (in Russian) please visit  Forbes Russia website >>>