How to work with a supplier using simplified Tax System in 2025

Article by Robert Gurdyumov

Starting from January 1, 2025, companies and sole proprietorships using the simplified tax system (STS) become VAT payers. This means that working with suppliers using the STS will require more attention to tax issues and documents.

Who must pay VAT under the STS?

According to the new rules, everyone who uses the STS automatically becomes a VAT payer[1]. However, there is one exception: if annual income does not exceed RUB 60 million, there is no need to pay VAT. But this does not apply to the importation of goods or agency VAT. This exemption cannot be waived[2].

What VAT rates apply?

If a supplier using the STS must pay VAT, the supplier may apply:

• The general VAT rates: 20%, 10% or 0%; or
• The special rates: 5%, 7% or 0% for certain transactions.

Important: If a supplier chooses a special rate, the supplier must apply it for 12 quarters (3 years). It is possible to stop using special rates only if there is a change in the income threshold: if it falls below RUB 60 million or exceeds RUB 450 million.

What do you need to know about documents?

A supplier using the STS that pays VAT is required to issue invoices with VAT shown separately, keep records of VAT (purchase and sales ledgers), and file VAT returns with tax authorities.

A buyer will be able to deduct VAT only if an invoice is issued correctly. That is why it is crucial that a supplier is compliance with all tax law requirements.

How to agree the price with the supplier?

Starting from 2025, the price of goods or services must include VAT. This means that the contract must clearly state what VAT rate the supplier will apply and how the price will change if the VAT rate changes or the supplier becomes exempt from VAT.

Failure to do so may result in disputes. For example, if the price goes up due to VAT, and the buyer refuses to pay more, this can be considered a default. Conversely, if the price goes down, the supplier may insist on maintaining the same amount, which will result in the buyer overpaying.

What to add to the contract?

To avoid risks and disagreements, it is recommended to include the following clauses in the contract:

• A provision on the revision of the price in the event of a change in the VAT rate or VAT exemption.
• The supplier’s obligation to notify the buyer of a change in the VAT payer’s status or the tax rate.
• The supplier’s obligation to correctly issue invoices and make changes to them if they are issued with errors.
• A tax clause that will obligate the supplier to be liable for the buyer’s possible losses if the VAT is not deductible due to errors in the documents.

What to pay attention to when working with a supplier using the STS?

Starting from 2025, suppliers using the STS will need to be treated as carefully as those who work under the general tax system. This means that it is important to check that the supplier is bona fide, has personnel and assets, and is able to fulfill its obligations.

Particular attention should be paid to cases when the supplier applies general VAT rates (10% or 20%). If the supplier applies special rates, but issues an invoice with a general VAT rate, a VAT deduction claim will be rejected.

It is recommended to review all contracts with suppliers using the STS. If they do not contain any VAT terms, you need to make changes: Clarify how the price will be determined, including VAT, and add the supplier’s obligations that will reduce the risks for the buyer.

Conclusion

Starting from 2025, working with suppliers that apply the STS will require more attention to tax issues and documents. To avoid problems, it is important to prepare in advance: revise the contracts, clarify the terms for VAT, and make sure that the supplier is in compliance with all legal requirements.

If you have any questions or need assistance in assessing your tax risks, please contact Anton Kabakov or Robert Gurdyumov. We will help you understand all the intricacies and prepare yourself for the changes.

[1] Articles 143, 346.11 of the Russian Tax Code as amended by Federal Law No. 176-FZ dated July 12, 2024 On the Introduction of Amendments to Parts I and II of the Russian Tax Code, Certain Legislative Acts of the Russian Federation, and the Invalidation of Certain Provisions of Legislative Acts of the Russian Federation.

[2] Letter No. 03-07-11/96800 of the Russian Ministry of Finance dated October 7, 2024, Letter No. 03-07-11/95245 of the Russian Ministry of Finance dated October 2, 2024.