The procedure for transferring previous years' losses to future tax periods for the purpose of calculating corporate income tax has changed substantially for 2017. Under Article 283 of the Tax Code, taxpayers that incurred losses in previous years can reduce the present year's tax base for all or part of the amount of the losses. Further, the carrying forward of losses relating to operations taxed at reduced corporate income tax rates (0%, 9% and 15%) – such as operations on the stock market and the provision of social, medical and educational services – is prohibited. Previously, only losses incurred during the 10 years preceding the relevant tax period could be recognised consecutively, which was done in the order in which the losses occurred.
As of January 1 2017, the abovementioned procedure for carrying losses forward has changed. This change will be effective from January 1 2017 to December 31 2020. The 10-year limitation on the carrying forward of losses has been abolished. However, during the four-year period, the tax base for previously incurred losses of no more than 50% can be reduced.
This restriction does not apply to all taxpayers. During the reporting period, the following taxpayers can continue to reduce the tax base fully for previously incurred losses:
- technological development special economic zone residents (such zones have been created in a number of cities, including St Petersburg, Zelenograd, Dubna and Tomsk);
- tourist and recreational special economic zone residents (these zones have been combined pursuant to a government decision);
- regional investment project participants;
- free economic zone participants;
- priority social and economic development area residents;
- free port of Vladivostok residents; and
- special economic zone participants in the Kaliningrad and Magadan regions.
Such an exception further increases the attractiveness of the abovementioned special economic zones and investment projects.
Previously, the losses incurred in prior periods could be recognised only at the end of a tax period. As such, taxpayers had to make quarterly advance corporate income tax payments and could carry forward losses only at the end of the tax year, leading to an overpayment of tax which had to be refunded. Taxpayers can now recognise the losses incurred in prior periods in advance corporate income tax payments.