Taxation and licences

The tax system in Russia
Administration of the tax system
Direct and indirect tax burden
Principal taxes
Legislative framework
Tax returns and payments
Assessments
Tax audits
Penalties

Spoiler: Russian legislation is apt to change easily; some information and documents may get outdated right after they are published. Please, consult Norsk Etableringssenter for updates and advice

The Russian tax system is relatively new and many tax concepts and issues that are standard in most market economies are just beginning to emerge in Russia. As new concepts are embraced by the Russian authorities, they are often applied differently than in the West, or in other countries with developing tax systems.
Today, tax reform has largely been completed in terms of codification and elimination of multiple tiers of regulations. The Tax Code of the Russian Federation summarises the general tax principles, rights and obligations of taxpayers and tax authorities, description of taxes payable and other provisions.
The government is planning to introduce certain anti-avoidance provisions (including controlled company legislation). In the meantime, guidance from the higher courts lays out several anti-avoidance approaches, including the concept of unjustified tax benefits. The fiscal authorities are beginning to adopt these approaches and crack down on aggressive tax evasion. In doing so, they are beginning to use the substance over form approach. Overall, this is a rapidly developing area. Certain other concepts are planned to be introduced, including profits tax consolidation and a significant upgrade of transfer pricing rules to bring them more in line with OECD guidelines.
In response to the economic crisis, in November 2008 a bill was passed to introduce a number of measures aimed at supporting businesses and individuals. The most significant change was the reduction of the corporate profits tax rate from 24% to 20%. Further tax incentives are being considered.

Administration of the tax system

The Federal Tax Service, which is responsible for collecting taxes, is subordinate to the Ministry of Finance, which has overall responsibility for collecting state budget revenues and for setting tax policy.
Other tax law enforcement bodies include the Federal Agency for Economic and Tax Crimes under the Ministry of Internal Affairs, which is responsible for investigating tax crimes.
Registration requirements
Every legal entity must register with the tax authorities in its place of location, as well as in each location in which it has a branch, a representative office, other separate subdivisions, immovable property or transport vehicles.
A foreign legal entity is required to register with the Russian tax authorities in each location in which it carries out activity through a subdivision (regardless of whether the activity is taxable or not) for a period exceeding 30 days cumulatively during a calendar year. Special registration requirements apply for foreign legal entities which (a) own immovable property in Russia, (b) own transport vehicles in Russia, (c) have movable property subject to taxation in Russia, (d) have opened bank accounts with Russian banks.

Direct and indirect tax burden

According to the Federal Tax Service’s official website, indirect taxes compose about one-third of total taxes collected in 2008:
Direct taxes collected in the first nine months of 2008 in Russia:
Mineral resources extraction tax – 40%
Corporate profits tax – 19%
Unified Social Tax – 11%
Other taxes – 2%
Indirect taxes collected in 2008 in Russia:
VAT – 25%
Excise – 3%

Principal taxes

The Russian tax system provides for revenues on three budgetary tiers: federal, regional and local. All taxes are legislated at the federal level, although regional and local authorities have the power to set (or reduce) rates and establish procedures for regional or local taxes. Lower-tier authorities cannot grant concessions with respect to taxes governed by a higher authority (i.e., regional authorities cannot grant concessions on federal taxes).
Federal taxes
• Corporate profits tax
• Value-added tax (VAT)
• Excise taxes
• Personal income tax
• Unified Social Tax
• Mineral resources extraction tax
• Payments for the use of natural resources
• Water tax
Regional taxes
Property tax
• Transport tax
• Tax on gambling
Local taxes
• Land tax
• Individual property tax
Apart from the taxes listed above, a company may be subject to certain obligatory pension and social insurance payments and pollution charges. Customs duty is governed separately by the Customs Code.

Legislative framework

Taxes, duty and fees are enacted by law and may be changed only by new legislation. Bills are developed by the Federal Assembly’s lower chamber (State Duma), then approved by the upper chamber (Federation Council) and signed into law by the president.
The Russian legal system does not include case law, and each court ruling technically binds only the parties involved. Nevertheless, the Supreme Arbitration Court and Constitutional Court issue rulings and guidance for the consistent application of laws and compliance with the main constitutional principles, and this guidance plays an important role in defining the approaches taken by taxpayers and the fiscal authorities.

Tax returns and payments

Companies are required to file tax returns with the tax authorities on a monthly, quarterly or annual basis depending on the particular tax and the company’s line of business. Some taxes (i.e., profits tax, property tax, Unified Social Tax, etc.) are paid in monthly, quarterly or annual instalments, with a final adjustment made when annual tax returns are submitted.
Companies may choose to calculate profits tax either monthly (with monthly advance payments calculated based on the actual profits received) or quarterly (with equal monthly advance payments calculated based on profits received during the previous quarter). The final payment for the year is due by 28 March of the following year. The quarterly and annual returns should be filed within the same deadline as the payment due dates.

Assessments

The tax authorities do not issue tax assessments to enterprises. Instead, the company must pay the amount of tax indicated in the tax return.

Tax audits

Tax returns are desk-audited by the tax authorities upon their submission. The tax authorities also have the right to perform regular field audits of companies. Field audits should not last for more than two months (in some cases they may be extended to four months – for example in audits of “major” taxpayers or taxpayers that have several separate subdivisions – or to six months in exceptional cases), and may cover only three calendar years prior to the year of the audit. Once the tax period has been audited, the tax authorities may not audit the same period again, except when a taxpayer is reorganised or liquidated, or if the respective tax audit is performed as part of a superior tax office’s review, or if a taxpayer has filed an amended tax return with a reduced amount of tax due.

Penalties

The law covers a variety of tax violations and establishes penalties for each particular type.
Underpayment of taxes may result in a fine equal to 20% of the underpaid taxes (or 40% if intent can be proven). The late filing of a tax declaration carries a penalty of 5% to 10% of unpaid tax per each month of delay in submitting the tax declaration. A number of fixed fines are imposed on a taxpayer for failure to register with the tax authorities or failure to supply them with the required information, etc. Failure to withhold tax may result in a fine of 20% for the tax agent.
Interest for late payment is charged at a rate calculated as 1/300 of the Central Bank of Russia’s re-financing rate (13% per annum from 1 December 2008) per day. The amount of underpaid tax and late payment interest may generally be collected by the tax authorities without the consent of the taxpayer or a court. However, collection of penalties requires the ultimate consent of the taxpayer or a court ruling.

The following sources were used
• www.pwc.com
• www.waytorussia.net
• www.russia.alloexpat.com
• www.moveoneinc.com
• www.global-immigration-news.totallyexpat.com
• www.visalink-russia.com