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Useful information

Doing business in Russia

Useful information

Main taxes and duties

The Russian tax system consists of federal, regional and local taxes.

Federal taxes are:

corporate profits tax;
value-added tax (VAT);
customs duties and excise duties;
personal income taxes;
insurance contributions for compulsory pension, medical and social insurance;
other federal taxes.

Regional taxes are:

corporate property tax;
transport tax;
other regional taxes.

Local taxes are:

land tax;
advertising tax;
individual property tax;
other local taxes and fees.

Federal taxes are levied throughout the territory of the Russian Federation, while regional and local taxes are levied on the taxpayers registered, operating or holding property within the territory of the region (municipal district).
Federal tax rates are set by the Tax Code at federal level. Regional and local authorities however may reduce regional and local part of the corporate profit tax rate respectively within the limits prescribed by the Tax Code.

Value Added Tax (VAT)

VAT is generally chargeable on sale of all goods and services in Russia and on importation of goods into the territory of the Russian Federation. The standard rate of VAT is 18%. Certain food products and goods for children are charged a 10% VAT, while exports of goods and related services are subject to VAT at 0% rate.

Sales of certain goods (works, services) are VAT exempt. VAT rules for exempt operations and those subject to 0% rate are very different.

Input VAT (i.e. VAT paid to suppliers) is generally allowed as a credit against output VAT (i.e. VAT charged to customers and payable to the budget) after services/materials/fixed or intangible assets are paid for and reflected on the books.

Exemption from VAT of certain sales may be disadvantageous to the supplier since VAT incurred on inputs may not be recovered, but should be instead charged to the costs of production.

Sales subject to 0% VAT (e.g. exports) allow recovery of input VAT.

There is a uniform invoicing procedure for VAT purposes applicable to all taxpayers providing goods, works, or services. VAT invoices of a standard format (“schet-factura”) are to be issued and registered in a sales journal of the seller and incoming VAT invoices from suppliers are to be recorded in a purchases journal of the buyer. Compliance with these invoicing procedures is critical to the buyer’s ability to recover VAT.

Supplies on which VAT is chargeable may be made by entities which have no presence or tax registration in Russia (e.g. foreign entities). In this situation, the recipient of the service (as described in the Tax Code – a tax agent) must withhold VAT from the payment to the supplier, at the same time this VAT may be credited by the tax agent as input tax, provided certain requirements are met.

Corporate Profits Tax

Corporate profits tax is payable in Russia on the profits of Russian legal entities and foreign legal entities carrying out business activities in the Russian Federation, calculated as operational and non-operational income less tax deductible expenses and loses.

Deductibility of certain categories of business expenses and losses is restricted under the Russian taxation rules, while a few types of expenses are non-deductible at all.

The general profit tax rate is set at 20% of the taxable business profits, where 2% is payable to the federal budget, 18% to the regional budgets. Additionally, the regions have been granted the power to decrease the regional rate down to 13.5% for certain categories of taxpayers.

The tax period is a calendar year. The reporting period may vary, depending on the system, used by a taxpayer:

if a taxpayer uses a quarterly system, the reporting periods are first quarter, half year, and 9 months of the year;
if a taxpayer makes monthly advance payment of profit tax based on actual profits, the reporting period is a month, two months, three months and so forth till the end of the calendar year.

Taxable income consists of sales income and non-operational incomes.

The Tax Code provides for special tax rates on dividends receipts and distributions.

If an entity pays dividends it must withhold corporate profit tax at source at:

9% if dividends are paid to a Russian legal entity;
15% if dividends are paid to a foreign legal entity.

The tax should be paid to the budget account with the territory office of the State Treasury within 10 days of the date when dividends were paid off.

Under the laws of the Russian Federation, a representative office/branch of a foreign company is not a Russian legal entity. A foreign company will not be subject to Russian tax on its net business income unless its Russian presence sets up a permanent establishment.

For Russian taxation purposes, a foreign legal entity has a permanent establishment when it conducts certain business activities in Russia through a representative office or other permanent place used for the regular conduct of such business activities. A permanent establishment is defined in the Tax Code as “a branch, division, office, bureau, agency, or any other place through which a foreign legal entity regularly carries out its business activities in Russia.”

The profits derived through a permanent establishment are taxed in Russia at the usual corporate profit tax rate.

Withholding tax rates where a foreign legal entity does not create a permanent establishment in Russia and is not protected by a double taxation treaty are described below:

10% on income from use or lease of transportation vehicles used in international traffic;
15% on dividends received from Russian legal residents;
24% for capital gains on immovable property when net book value or acquisition cost can be deducted from gross revenue or 20% on gross amount of revenue from disposal of immovable property (without deduction of costs);
20% for capital gains arisen from disposal of shares of Russian companies, which assets consist for more than 50 percent of immovable property situated in Russia;
20% on other types of income.

Personal Income Tax

Personal income tax is the tax levied on physical persons. Whether a particular individual is liable to the tax or not depends on that person’s residence and type of income.

According to the Tax Code a tax resident is a person who stays in the Russian Federation for not less than 183 days in a calendar year.

Taxation of residents and non-residents is different. Residents are taxed on their world-wide income, while non-residents are taxed on income from Russian sources.

Tax period for personal income tax purposes is a calendar year.

Standard tax rate is 13%.

For non-tax residents of Russian Federation tax rate is 30%.

Dividends paid by Russian organizations to non-residents are taxed at a 15% rate, withheld at source.

Increased rate of 35% applies to the following income:

taxable portion of prizes and awards received at competitions and/or games conducted for advertising purposes;
taxable insurance payments under life insurance agreements concluded for less than five years;
interest on bank deposits exceeding ¾ of Central Bank rate on rouble deposits and 9% on deposits in foreign currency;
benefit received in the form of low (zero) interest on corporate (non-bank) loans (imputed interest income).

For dividend income tax rate is 9%.

Some types of income may be fully or partially exempt from taxation if certain conditions are met.
The major exemptions and related conditions are as follows:

government support payments, excluding sick leave payment;
state pensions;
payments to individuals of compensatory nature and business expense reimbursements;
alimonies;
scientific, cultural, educational grants from foreign organisations;
one-off financial aid;
payments made by employers to Russian recreation and resort facilities for the benefit of employees;
medical treatment payments made by employers for the benefit of their employees;
scholarships;
others (see Tax Code).

The following business travel expenses reimbursed to employee are not subject to personal income tax:

per diem allowance (within statutory norms);
travel costs (including taxi to and from airport);
airport fees and commission charges;
luggage fare;
accommodation expenses (hotel);
business communication expenses.

All costs (except per diem allowances) must be supported by appropriate documents. In the absence of such documents the amounts will be fully taxable with the exception of accommodation expenses which will be taxable in the part exceeding statutory limits.

Insurance contributions for compulsory pension, medical and social insurance

There are two principal groups of insurance contributions payers:

employers, including organisations, individual entrepreneurs (on payments to employees);
individual entrepreneurs (on their business income).

Starting from January 2011 the insurance contributions for compulsory pension, medical and social insurance have increased from 26% to 34%, except for certain limited
categories of taxpayer (broadly, in the IT, social and agricultural spheres) for which rates of 14 – 26% apply.

Starting from January 2012 insurance contributions have decreased to 30% during 2012-2013 years, if payments accrued in favor of an employee (the base subject to contributions) are not higher than Rub 512,000 in 2012 and Rub 573,000 in 2013 (22% to the Pension Fund of Russia, 2.9% to the Social Insurance Fund and 5.1% to the Federal Fund of Mandatory Healthcare Insurance).
The amounts that exceed the said cap of payments made in favor of an employee are imposed
an additional 10% rate of insurance contributions that will be paid to the Pension Fund of the Russian Federation.

Obligatory Accident Insurance contributions are calculated and payable separately from the above insurance contributions. The rates vary from 0.2% to 8.5%

Corporate Property Tax

Corporate property tax is a regional tax. Corporate property tax is payable by:

enterprises, organisations with a status of legal entity;
foreign legal entities, having taxable property in Russia.

Tax base for Russian legal entities and foreign legal entities which have a permanent establishment in Russia is average annual value of movable and immovable property considered as fixed assets.

Tax bases for foreign legal entities which do not have a permanent establishment in Russia is inventory value of immovable property situated on the territory of Russia.

Tax rate of property tax may differ for regions of Russia, but not exceed 2.2.%. The Moscow tax rate is 2.2 %.

Transport tax

Tax payers of transport tax are legal entities and individuals, who own vehicles (cars, bikes, buses, airplanes, helicopters, ships, yachts and other engine powered vehicles).

Tax base of transport tax is calculated as the engine power of vehicle (in horse power or other physical units).

Different tax rates for different types of vehicles (in Rubles for every single horse power) are imposed by the laws of regions of Russia and may differ for different region.