Split Up, Pay Up: Why the Finance Ministry Wants to Lower the Simplified Tax Threshold to 10 Million

"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. Aigul Shadrina, tax consultant and CEO of S4 Consulting.

That said, the transition shouldn't prove catastrophic for companies from an operational standpoint. According to Maria Semenova, director of the tax structuring department at FBK Legal Maria Semenova, smaller companies have an alternative: they can opt for a reduced rate of 5% or 7% (depending on revenue size) that doesn't involve deductions. "It works like a sales tax analog that's simple to administer," the expert explained.

"Fragmentation downward": an unintended consequence

At first glance, lowering the threshold from 60 to 10 million might push small businesses toward a new wave of "gray" schemes. The logic is straightforward: if a company's revenue grows and exceeds 10 million rubles, owners could "multiply" the business across several sole proprietorships or legal entities to preserve their preferential status.

Experts confirm that this risk does indeed exist. Aigul Shadrina (S4 Consulting) told Argument Media: "For micro-businesses with revenue just above 10 million, the risk of artificial fragmentation downward is extremely high. This could trigger a wave of new sole proprietorships that are de facto conducting unified operations."

However, it's important to understand that such a strategy may only work in the short term. First, the Federal Tax Service has long since learned to identify signs of fragmentation: from matching founders and addresses to shared employees and contracts. Automated systems like "ASK NDS-3" and "AIS Dokhody" are already in use today, analyzing dozens of criteria. Attempts to "split up" a business on paper increasingly end in tax claims and additional assessments.

Second, artificial fragmentation limits the business itself. Such schemes make normal lending impossible, as well as participation in tenders and working with major clients. Practicing accountant Larisa Zakharchenko told Argument Media: "Russians first try to be clever and dodge impending trouble. But those who want to work seriously, with major clients and without risks, will grow their turnover and avoid fragmentation."

Third, the market itself is pushing entrepreneurs toward "going white." Companies planning to attract investors or enter new markets are increasingly abandoning fragmentation schemes. "Businesses that want to attract strategic partners or investors, as well as work with government contracts, are requesting voluntary consolidation," said Maria Semenova (FBK Legal).

The bottom line: honest business will survive, but accounting will get more expensive

Lowering the threshold to 10 million is not a catastrophe or a "tax death sentence." It's a signal that the Russian economy is transitioning to more mature rules. The government expects to bring entire sectors out of the gray zone—real estate, retail, wholesale. And for businesses, this means new forms of reporting, greater responsibility, and the need to understand the nuances of VAT.

Yes, accounting will become slightly more expensive. But there are plenty of upsides. Companies that build transparent structures get bonuses: access to major clients, investor confidence, and the ability to participate in government procurement. Those counting on growth—from exports to IPOs—are already consolidating and voluntarily "going white" today. According to Maria Semenova, Director of the Tax Structuring Department at FBK Legal Maria Semenova, if small companies choose the "simplified tax system + 5% VAT" option, no significant increase in accounting and IT solution costs should be expected, since in this case VAT calculation does not involve claiming tax deductions.

It turns out that the "10 million threshold" is not so much a restriction as a filter. Those who want to stay in the gray zone will try to fragment, but the risks for them are only growing. And those who see their future in long-term growth, on the contrary, get an incentive to play by the rules.

That's precisely why the main effect of this innovation isn't higher taxes, but bringing the economy out of the shadows. Honest businesses will continue to operate and grow, just under new conditions. And the sooner entrepreneurs accept these rules of the game, the better their chances of being among tomorrow's winners.