On 25 May 2011 the upper house of the Russian parliament, the Federation Council, approved the draft law (the “Draft Law”) clarifying the rules for deducting expenses for research and development (“R&D”). The Draft Law is part of the government’s policy of providing incentives for innovation.

The Draft Law revises the concept of R&D expenses in respect of:

  • creating new products (works and services) and improving existing ones; and
  • creating and improving applied technology as well as production and management methods.  

The Draft Law also establishes an exhaustive list of R&D expenses that may be fully deducted for profit tax purposes, including:

  • amortisation and depreciation of R&D fixed and intangible assets;
  • payroll of employees involved in R&D;
  • material expenses directly relating to R&D; and
  • payment for R&D contracts.  

Other expenses directly connected with R&D may be deducted in the amount of 75% of the payroll of employees involved in R&D.

The Draft Law also stipulates that reserves may be set up for R&D costs to be incurred, but only for a two-year period and under the following conditions:

  • the amount allocated to the reserve is entered as an expense;
  • the amount of the reserve not used within the set period is re-entered as non-operating income; and 
  • the innovations are aimed at completing the next set of measures to stimulate and support innovation activity in Russia.  

[Draft Law No. 448864-5 “On Amending Article 95, Part One and Part Two of the Tax Code of the Russian Federation Regarding Creating Favourable Conditions for Innovation Activity; and on Amending Article 5 of the Federal Law ‘On Amending Article 2 of the Tax Code of the Russian Federation and Separate Legislative Acts of the Russian Federation’”]