Choosing a tax system when registering an LLC

Contents:

• What do you need to know about taxation in general?
• Choosing a tax system for LLC
• Simplified Taxation System (USN)
• The general system of taxation (OSNO)
• Unified Imputed Income Tax (ENVD)
• Unified Agricultural Tax (ESHN)

A limited liability company is a form of business organization. It is established by one or more founders from among individuals or legal entities. The percentage of ownership is determined by the share in the authorized capital of the company.

The taxation system is the rules established by the legislation of the Russian Federation, including the Tax Code of the Russian Federation, which regulate the accrual and payment of taxes by companies.   

LLC, along with other forms of doing business, are required to charge and pay taxes to the budget of the Russian Federation in accordance with the chosen tax regime. The system is selected during the registration of the company. It is important to understand that this is an important decision that can affect the financial results of any company.

In this article, we will take a detailed look at the main taxation systems that are available for LLC, as well as help you choose the most suitable one for your business.

What do you need to know about taxation in general?

Any tax regime consists of several important elements, without which it is impossible to implement fiscal policy as a whole. This concerns:

• Taxpayer — a person and an organization that pays taxes after accrual.
• The object of taxation — real estate, car, different assets, as well as the fact of their disposal (sale) from which tax is levied.
• Tax base — the amount from which the tax is paid.
• Tax rate — the set percentage to be paid from the amount.
• Tax period — the dates on which taxes need to be paid. It can be a quarter or a year.
• Reporting period — when a part of the tax base is formed and it is necessary to pay an advance payment or submit a report.
• The procedure for calculating the tax — the principle of calculation itself.
• Payment deadlines — the payment period established by law.
• Tax benefits — preferences that taxpayers can count on.

Choosing a tax system for LLC

Right now, there are six tax regimes in Russia:

• The general system of taxation — OSNO.
• Simplified taxation system — USN.
• The unified agricultural tax — ESKHN.
• Unified imputed income tax — ENDV.
• Patent taxation system — PSN.
• Tax on professional income — NAP.

Legal entities can work only on four of them – OSNO, USN, ENDV and ESNH. Let’s look at these systems in more detail.

Simplified Taxation System (USN)

The USN is intended for small enterprises with an annual income of no more than 150 million rubles. Under the USN, company pays monthly tax payments of no more than 6% of the company’s income, which makes this tax system one of the most popular among small and medium-sized businesses. However, if an organization has large expenses, then the company does not have the opportunity to deduct them from income, which can negatively affect financial results.

In general, the USN assumes the payment of one income tax and insurance premiums for employees. This single tax replaces VAT and income tax.

There are two calculation options:

• 6% of the income received.
• 15% of the difference between income and expenses.

If the income for the year amounts to more than 188.55 million rubles, then the rate on the STS “Income” will rise to 8%, and on the STS “Income minus expenses” — up to 20%.

It is also important to consider the following payments:

• Property tax for objects in a special list. The list is individual for each subject. As a rule, we are talking about office and shopping centers. It is important to know that if the property is not on the list, then you do not need to pay tax.
• Personal income tax for employees. It is calculated based on the employee’s salary.
• Social contributions for employees. It concerns pension and health insurance. Since 2023, all contributions go to the unified Social Fund of Russia. It is important to know that firms can reduce the amount of contributions, but not by more than 50%, provided that the tax is paid at 6%. On the USN “Income minus expenses”, you can include insurance premiums in expenses and so reduce the income from which the tax is charged.
• Transport tax. Subject to the availability of a car on the balance sheet of the company.
• Land tax. Subject to the availability of land on the balance sheet of the company.
• Trade fee. Concerns companies that are engaged in retail trade in Moscow.

Usually, an application for USN is written to the tax service at the same time as the application for registration of the company is submitted. This is the easiest and most effective way to get started on the simplified system if the company falls under the criteria. You can also submit a notification within 30 days after registration. If the company has been working on the market for a long time, then you can switch to the USN only from the beginning of next year. The notification is submitted from October 1 to December 31 of last year. It is important not to have tax debts.

The general system of taxation (OSNO)

OSNO is the most common taxation system for LLC. It is suitable for companies of any size and includes the payment of income tax and VAT. Companies using OSNO can deduct business-related expenses from their income, which helps to reduce the amount of tax payments. However, to use this tax system, it is necessary to keep strict accounting records and comply with numerous tax rules.

OSNO assumes the payment of the largest number of taxes. These include:

• VAT (value added tax). It is paid by the company when selling and reselling goods and services. It is paid every month at a rate of 20% (basic) or 10% (preferential when selling certain categories of goods). There is a 0% rate that applies to goods for export.
• Income tax. It is calculated from the difference between income and expenses. It is 20%.
• Property tax. It is charged from real estate objects – apartments, offices, garages, parking spaces owned by the company. It is calculated from the cadastral value. If the property is not included in the regional list of real estate, the tax is charged on the book value.
• Trade fee. Pay retail companies in Moscow.
• Social contributions. Pension, social and medical insurance. Contributions are transferred to the Social Fund of Russia.
• Transport taxes. They are paid if the company owns cars.
• Land tax. It is paid if the company owns land plots of any purpose.
• Other taxes. Including water and environmental charges.

There are several ways to switch to OSNO. The first and most obvious is the registration of a new company. If at the same time an application was not submitted for the transition to “simplified”, then the company will automatically work on a common system. It is also possible to abandon the USN or UTII in favor of the OSNO. In this case, a separate application is submitted. The compulsory order of transition involves exceeding the limits during the year or violating the conditions for the use of the USN or ESN.

Unified Imputed Income Tax (ENVD)

The UTII is the most convenient taxation system for companies that are engaged in retail trade or services, and do not have significant expenses. In this case, taxes are calculated based on income that is assumed for a particular industry, which avoids the need to maintain complex accounting records. However, this tax system is not suitable for companies with significant expenses, as they cannot deduct them from income.

You can switch to the UTII at any time. To do this, within 5 days from the beginning of the application of the UTII, you must apply to the Federal Tax Service for the transition. You can contact any tax service. However, if the company is engaged in the transportation of goods or passengers, retail trade or advertising on transport, then you need to contact the place of registration.  

Unified Agricultural Tax (ESHN)

Such a tax can be applied by companies with income from agricultural activities, which is at least 70% of all income. At the same time, no more than 300 people should work in the company. Fisheries and organizations providing services in the field of crop production and animal husbandry can switch to the regime.

The ECN (by analogy with the USN) replaces the income tax and property tax. The total rate is 6%, which is calculated from the amount of income reduced by the expenses incurred. You also need to pay VAT on the sale and resale of goods. It is paid once a month.

VAT rates correspond to the main:

• Basic — 20%.
• Preferential — 10%.
• When exporting — 0%.

But for some companies, there are VAT benefits on the ESHN. For example, if the revenue for the previous 3 months is less than 2 million rubles, you can not pay VAT.  

It is also necessary to pay pension, social and medical contributions for employees.

You can switch to ESHN once a year. The application is submitted from January 1 of the following year. It is necessary to fill out the relevant application in two copies and take it to the tax service at the place of registration of the company. There is exactly one year for this – until December 31.

Newly created sole proprietors and companies can submit a notification together with other documents for registration or within 30 calendar days after registration.

If you have any questions about the choice of a taxation system for an LLC or problems related to the transition from one regime to another, you need to seek qualified assistance. VALEN’s experienced lawyers and accountants will help you solve any issue and collect the necessary documents. We also provide consultations on choosing the optimal tax regime.