VAT Rate Increase to 22% and Elimination of Certain Social Contribution Benefits

The Russian Ministry of Finance has submitted a comprehensive package of amendments to the Tax Code to the Government, which is aimed at boosting budget revenues. If enacted, these changes would lead to a significant increase in the tax burden on businesses, particularly SMEs, effective January 1, 2026. The most important proposed measures concern VAT and social security contributions. The amendments are expected to be approved by the Russian parliament without substantial modifications.

A central proposal is an increase of the standard VAT rate from 20% to 22%. A reduced rate of 10% will be maintained for socially essential goods. The amendments are also aimed at lowering the annual revenue threshold that exempts companies under the simplified tax system from VAT obligations — from RUB 60 million to RUB 10 million. This change will impact many small businesses currently operating under the simplified regime.

Further significant changes are anticipated for SMEs. The Ministry of Finance has proposed to revoke the reduced social security contribution tariffs (15% instead of 30% on payments exceeding the minimum wage), which were introduced during the pandemic. These preferential rates will remain in effect only for certain priority sectors. Companies in trade and construction business, as well as a number of other industries will have to apply the standard tariffs.

The amendments also target the gambling business by introducing a new tax. Additionally, it is planned to expand the application of the federal investment tax deduction for corporate groups: any member of a group whose participant has made capital investments will be able to utilize the benefit, irrespective of the industry.

The proposed changes are among the most consequential in the tax sphere in recent years. Given the planned effective date of January 1, 2026, it is advisable for businesses to start analyzing the potential impact on their operations now.