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The Constitutional Court has introduced new conditions for the application of value added tax (VAT) set-off and return. To minimize any tax risk, contractors should be chosen very carefully and no VAT-related purchases should be made if there are reasons to doubt the contractor's good faith as a taxpayer.

The Constitutional Court has ruled that a company is allowed to claim value added tax (VAT) back from the government only if the purchased goods or services were paid for with the company's own funds, as opposed to borrowings. If the payment was made from borrowed funds, a VAT return will be available only once the loan has been fully repaid.

In the past few months, in the course of ongoing tax reforms, several significant changes were introduced to the Russian taxation system. Among other things, the rate of tax on dividends received by both individuals and companies is set to rise from the current 6% to 9% in the New Year, and the tax on the issuance of securities has been abolished.

A major change to the Russian corporate tax regime recently came into force with the abolition of regional tax incentives. However, the government is nonetheless discussing the introduction of new economic zones in the foreseeable future. A Russian court has also confirmed that an interest-free loan from a non-banking organization does not give rise to a tax liability on the benefit received.

As part of the programme to reform and overhaul Russia's burdensome taxation regime, a number of reforms have recently been proposed. These involve VAT imposed on construction costs and the possible introduction of a single real estate tax.