Members of the State Council Commission on the Northern Sea Route and the Arctic have deliberated upon proposals to adjust planned amendments to tax legislation regarding the simplified taxation system (STS) for small and medium-sized enterprises (SMEs) operating in the Arctic Zone of the Russian Federation.

“Entrepreneurs and small-to-medium businesses operating in the Arctic must enjoy preferential taxation terms compared to those applicable nationwide. The working conditions here are harsher, costs are higher, and the current federal income thresholds undoubtedly require careful evaluation and corresponding adjustment proposals,” emphasized Andrei Chibis, the commission’s head.

Participants observed that the proposed reduction of the annual revenue threshold for applying the STS – from 60 million to 10 million rubles starting in 2026 – would trigger a value-added tax (VAT) obligation, posing significant risks to Arctic entrepreneurs. Operations in these regions are already challenged by extreme climate, remoteness from markets, and high transportation and utility costs. Lowering the threshold further – first to 20 million, then to 10 million rubles – would only increase the burden by mandating VAT payments.

Additionally, the commission considered maintaining reduced insurance premium rates for SMEs, as their cancellation could lead to sharp price hikes, staff reductions, under-the-table wages, and even the closure of some businesses. To address this, the commission proposed classifying Arctic-registered SMEs as priority economic activities.

As a potential solution, the commission suggested a gradual increase of the revenue threshold for Arctic SMEs utilizing the STS: to 40 million rubles in 2026, 30 million rubles in 2027, and 20 million rubles in 2028.

Participants also recommended introducing an additional preferential VAT rate for Arctic businesses with annual revenues between 20 million and 60 million rubles. This measure would bolster SME stability, enhance the Arctic’s investment appeal, and mitigate socioeconomic disparities in northern regions.

The necessity for adjustments and eased conditions was unanimously supported by commission members and Arctic regional representatives. Their proposals, tailored to local specifics, will be formalized in the final protocol.