Russia to Allow Broader Tax Deductions for Corporate Defense Spending

Russia’s Finance Ministry Opens Door to Wider Tax Deductions for Defense Expenses

Russia’s Ministry of Finance is preparing to amend the Tax Code to let companies deduct a broader range of defense-related expenditures when calculating their taxable profit. Deputy Finance Minister Alexei Sazanov told reporters on 6 August that the ministry has received complaints from businesses that certain costs tied to “defensive measures” cannot currently be offset against revenues – a gap that may be closed as early as the 2026 tax year.

“We are now studying what the problem is,” Sazanov said, adding that if the obstacles are real, the government would introduce legislative changes in the autumn. He stressed that the ministry is not considering deferrals or instalments for companies affected by attacks; instead, the goal is simply to allow those expenditures to be counted as legitimate business costs. The deputy minister noted that, in his view, the current tax code already permits the deduction of most such expenses, but acknowledged that companies have pointed to specific types of outlays that fall through the cracks.

Any amendment would need to be agreed with the State Duma, because profit tax revenues are partly allocated to regional budgets. Sazanov indicated that the government would seek a consensus with regional authorities. Preliminary estimates suggest the net revenue loss would be small, as the bulk of defense spending is already tax-deductible under existing rules.

Why Tax Treatment of Defense Spending Is Becoming a Tipping Point for Russian Business

A Patchwork of Tax Rules in a War Economy

Russia’s corporate sector has been grappling with an unusual accounting challenge: how to treat spending on fortifications, security equipment, drone countermeasures and other defensive measures that have become routine for many firms operating near conflict zones or in industries targeted by drone strikes. While ordinary security expenses – such as hiring guards or installing alarms – are generally deductible, the ministry has received complaints that certain expenditures do not fit neatly into existing cost categories, leaving companies unable to reduce their tax bill.

The government appears to be acknowledging that the tax code, written in peacetime, does not fully accommodate the realities of a protracted conflict. By indicating a readiness to amend the code and even backdate the changes to 2026, the finance ministry is sending a signal that it views these expenditures as legitimate business costs – a stance that could ease the financial strain on energy infrastructure operators, logistics firms and manufacturers that have been forced to invest heavily in physical protection.

Fiscal and Regional Budget Implications

The deputy minister’s insistence that “this shouldn’t be a substantial sum” suggests the treasury does not expect a meaningful dent in tax receipts. That confidence likely stems from the fact that the most expensive items – such as capital expenditure on reinforced structures – may already be capitalized and amortized under general rules. The problematic costs are likely smaller-ticket, non-capital items that sit in a grey zone between security and operational overhead.

Nevertheless, any change to the tax base will affect the regions, which receive a share of profit-tax revenue. The need to seek consensus with the Duma and regional leaders could slow the legislative process, particularly if some regions are already forecasting tight budgets. The timeline – autumn legislation for a 2026 effective date – suggests the ministry is prioritizing speed, but the political dimension may require horse-trading.

What Russian Companies Need to Know About the Pending Tax Change

• Audit current defense-related outlays: identify expenditures that are being treated as non-deductible today and document why existing rules exclude them. This will be essential evidence if the ministry requests concrete examples.
• Model the cash-flow improvement: if the amendment passes, firms should calculate the likely reduction in their effective tax rate on affected spending. Early budgeting for 2026 can incorporate the potential relief.
• Track the legislative timetable: the deputy minister mentioned autumn for possible amendments. Watch for the draft bill’s publication and any signals from the Duma’s budget committee about regional revenue safeguards.
• Coordinate with industry associations: companies whose peers face the same problem can submit joint submissions to the finance ministry, increasing the chance that the final rules cover all relevant expense categories.