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Read original →Split Up, Pay Up: Why the Finance Ministry Wants to Lower the Simplified Tax Threshold to 10 Million
The Finance Ministry is proposing to reduce the VAT-exempt simplified tax system threshold from 60 to 10 million rubles. We examine who will be affected by these changes, how to combat business fragmentation, and what alternatives entrepreneurs have.
AI summary
The Ministry of Finance proposes to lower the threshold for applying the simplified taxation system without VAT from 60 to 10 million rubles to counteract artificial business fragmentation. According to the Federal Tax Service, almost a third of companies using the simplified system—more than 420 thousand organizations—show signs of fragmentation, especially in real estate, retail, and wholesale sectors. Experts believe the measure will affect up to 20% of SMEs but will help bring the economy out of the gray zone and create incentives for transparent business operations.
"Fragmentation Economics"
According to the Federal Tax Service, the simplified tax system is used by more than 1.45 million companies and individual entrepreneurs. Of these, nearly a third—421,826 organizations—show signs of artificial business fragmentation. Leading the pack are real estate and leasing (18.6%), retail (12%), and wholesale (10%). It's precisely in these sectors that companies most frequently split themselves into dozens of legal entities and sole proprietorships to remain under the preferential tax regime and pay less in taxes.
Meanwhile, Russia currently has an amnesty in place for business fragmentation. To qualify for the amnesty, business owners must consolidate their operations into one entity and switch to the general taxation system (OSNO). In this case, they'll be exempt from fines and unpaid taxes for 2022–2024. This process is already underway, but mainly among entrepreneurs looking to develop and scale their businesses. "Industries where we're seeing a move away from fragmentation include IT, research and development, food production, and manufacturing," notes Maria Semenova Maria Semenova, Director of the Tax Structuring Department at FBK Legal, in an interview with Argument Media.
Who Will Be Affected by the New Threshold
Today, according to Deputy Finance Minister Alexey Sazanov, only 3.6% of companies on the simplified system pay VAT at the 60 million ruble threshold. If the threshold drops to 10 million, that share could rise to 15%. However, some experts cite even higher estimates. "We believe around 20% of SMEs will be affected by this measure. That's nearly all businesses with revenues between 10 and 60 million. For companies with low margins, this is a serious challenge," Aigul Shadrina told Argument Media. , tax consultant and CEO of .