Once a company on the simplified tax system (USN) crosses the 20-million-rouble revenue threshold, the accountant arrives with a question: which VAT rate should we choose?
The options are:
- 22% — the standard rate, with the right to deduct input VAT.
- 5% or 7% — reduced rates (5% up to 250 million revenue, 7% up to 400 million), but without the right to any VAT deductions.
From an accounting perspective, this is arithmetic. From a corporate law perspective, it is a decision that can break a partnership.
Why the VAT rate choice is a corporate conflict
The VAT rate restructures the company’s entire financial model — and with it, the amount of net profit available for distribution. This is where co-founders’ interests diverge.
A passive investor or financial partner typically votes for the reduced 5–7% rate. They want predictable margins and maximum dividends now. Less VAT means more cash in hand.
A managing partner developing production or working with large counterparties on the general tax system sees the other side: without the 22% rate, the company loses clients who need full input VAT deductions, and cannot offset VAT on capital expenditures. Real costs rise; actual margins fall.
If the partners did not agree in advance, either one can block the decision at the general meeting. The business stalls.
What to fix in your corporate documents
These questions cannot be left to the majority shareholder’s discretion or to chance. Tax strategy should be agreed while the relationship is still calm — and recorded in documents both partners have signed.
Shareholders’ agreement
Specify an algorithm: under what financial indicators and cost structure the company must choose a particular rate. Include a deadlock-resolution mechanism — for example, referral to an independent financial expert, a buy-out right for the dissenting partner, or mandatory mediation.
Criteria for approving major transactions
If the company chose 5–7%, every major contract must be evaluated assuming no VAT deductions. Otherwise a deal that looks profitable on paper turns into a loss once the tax effect is included.
Rules for changing tax strategy
The VAT rate can be changed — but not more than once per period. Fix in the shareholders’ agreement the conditions under which either partner may initiate a rate change, and what majority is required.
What happens without any fixed rules
The typical scenario: revenue grows, one partner wants to stay on the reduced rate, the other realises the company is losing key clients without the 22% option. The vote is 50–50. No decision is reached. The company drifts without a current tax strategy, loses contracts and profit.
This is not a hypothetical. Corporate deadlocks over tax strategy are one of the most common ways a functioning business destroys itself — not through competition, but through internal founder conflict.
Practical takeaway
Choosing a VAT rate is not a technical accounting question. It is a decision that redefines the company’s financial model and how profit is split between co-founders.
If you have a partner business and revenue is approaching 20 million roubles:
- Agree on the strategy before the question becomes urgent.
- Record the algorithm in a shareholders’ agreement.
- Build in a deadlock exit mechanism.
Without those steps, an accounting question becomes a legal dispute.
Read Also
- Key Legislative Changes in Russia from 2026
- Business Splitting Is Dead: What to Do When Revenue Hits 20M
Running a partnership and need to lock in your tax strategy before disagreements arise? We will review your structure and prepare the agreements that prevent deadlocks before they happen.