Taxation and licences

The tax system in Russia
Personal Income Tax in Russia
Employer’s Withholding Obligations
Tax returns
Russian taxes
Certification in Russia
Customs
Currency control
Russian Legistation

The Russian tax system is relatively new, and many tax concepts and issues that are standard in most market economies with longer taxation histories are just beginning to emerge in Russia. For that reason many concepts familiar to Western business people and tax specialists have yet to find their way into Russian tax legislation and practice. As new concepts are embraced by Russian authorities, they are in many cases applied differently than in the West, or in other countries with developing tax systems.

The overhaul of a patchy tax system brought into existence by the rapid transition to the market economy in the early 1990s began in 1999 with the adoption of the first part of the Tax Code. Today, tax reform has largely been completed in terms of codification and elimination of multiple tiers of regulations. A new 13% flat rate for personal income tax, reduced corporate tax (from 24% to a 20%) and reduced VAT (from 20% to 18%) were introduced.

The government plans to introduce certain anti-avoidance provisions (including controlled company legislation). In the meantime, guidance from the high courts lays out several antiavoidance 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.

Personal Income Tax in Russia

The taxpayers of personal income tax are individuals – residents of the Russian Federation and individuals – non-residents of the Russian Federation who receive income from the sources on the territory of the Russian Federation. Even a foreign citizen can be a tax resident of the Russian Federation if he resides on the territory of the Russian Federation not less than 183 days of the calendar year. The tax rates for personal income tax in Russia are the following:

• 13 % – for income received by tax residents;
• 30 % – for income received by tax non-residents on the territory of the Russian Federation;
• 35 % – for certain kinds of income;
• 9 % – for income from share (stock) dividends received by tax residents;
• 15 % – for income from share (stock) dividends received by tax non-residents.

An individual who is a non-resident of the Russian Federation may be exempt from taxation by Russian tax authorities, provided that he introduces (forwards) to Russian tax authorities an official confirmation that he is a resident of the state that has double taxation treaty with the Russian Federation. It is also important to note that if the organization pays for the lease of apartments for its foreign employee, the latter shall pay personal income tax on 13 % or 30 % tax rate depending on the period of time he resides on the territory of the Russian Federation.

Employer’s Withholding Obligations

Income tax should be withheld at source, by an employer who is deemed to be a tax agent, with respect to all remuneration paid to individuals (employees and individual contractors, except for those who are duly registered individual entrepreneurs). Under current rules, responsibility to be a tax agent lies with Russian entities, individual entrepreneurs and permanent establishments of foreign legal entities in Russia. In addition to withholding obligations, employers are required to provide information to the tax authorities on income paid and tax withheld, and to notify the tax authorities about the amounts of income received by individuals from which tax can not be withheld.

Tax returns

And individual is required to file his/her annual tax return with the Russian tax authorities in the following cases:

– he/she is self-employed;

– he/she received income from which Russian tax was not withheld by a tax agent;

– he/she received income from which Russian tax was withheld at the incorrect rate;

– he/she is a Russian tax resident and received income from sources outside Russia;

– he/she is entitled to and intends to take an income tax deduction provided for under Russian law.

Overview of Russian taxes

http://www.worldwide-tax.com/russia/russia_tax.asp

http://www.worldwide-tax.com/russia/indexrussia.asp

KPMG in Russia
http://www.kpmg.ru/russian/supl/library/taxlegal/Doing_business_in_Russia.pdf
DOING BUSINESS IN RUSSIA – Business entities, Taxation of Businesses, Taxation of individuals, Foreign Exchange control, Sanctions and penalties, Labour considerations.
http://www.kpmg.ru/russian/supl/library/taxlegal/Tax_Overview.pdf

Ernst & Young Russian Legislation Website
http://www.tax.eycis.com/

The Government of the Russian Federation – Federal tax service
http://www.nalog.ru/english.php?topic=english

Russia Tax, Law & Business Briefing: 2006
Maximize ROI on Your Russian Business Ventures
http://www.wtexecutive.com/cms/content.jsp?id=com.tms.cms.section.Section_2015

International tax review
Russia: Double tax treaties, foreign partnerships and beneficial ownership
PricewaterhouseCoopers
http://www.internationaltaxreview.com/?Page=10&PUBID=35&ISS=16210&SID=513061&TYPE=20

Russian Tax Legislation: Value Added Tax VAT, Profits Tax, Assets Tax, Unified Social Tax, Personal Income Tax in Russia
http://www.vfbs.ru/tax_law.htm

CERTIFICATION IN RUSSIA

(information compiled in cooperation with vfbs.ru)

Russian legal entities and branches (including entities with foreign ownership and branches of foreign legal entities) may carry out any activity which is not prohibited by legislation. For instance, Russian legislation does not allow foreign companies and private Russian companies to own and sell some strategic objects, weapons and ammunition and nuclear products. Some activities also require that special permission licenses are obtained and some products may require certification.

Licensed activities are listed not only in the Law ‘On Licensed Activities’ No 128 FZ of August 8, 2001, but also in several other laws and include:

– banking, insurance, investment
– customs brokerage, transportation, logistics, vehicles, aircrafts repair and maintenance
– medicine and pharmaceuticals, production of medical equipment
– education
– telecommunications
– notary services
– construction and maintenance of dangerous objects
– all activities related to weapons (non-strategic), drugs, poisons
– travel agency
– some other similar activities.

Medicines, detergents, medical equipment, telecommunication equipment and some other products require certification before their import and sale in Russia.

CUSTOMS

Customs relationships are governed by the Customs Code, Law No 31-FZ of May 28, 2001 and a number of subordinate laws and instructions which detail the provisions of the Customs Code.

As a general rule, goods may be imported and exported by all entities and offices. Representative offices of foreign legal entities, naturally, may import only for personal use and often apply a temporary importation regime. As far as branches of foreign legal entities are concerned, goods for further resale may not be imported by branches within a contract between a foreign and Russian legal entity, i.e. there should be no international trade deal.

Some relief from customs duties and import VAT may be obtained under temporary importation and similar customs regimes. The relief may be total or partial (with payment of a percentage of customs duties and import VAT for the period of importation). In theory, paid duties under temporary importation regime are refundable upon export however in practice this refund does not usually happen. Goods under temporary importation should be exported in the condition as they were imported.

The importation of a number of goods requires certification and the examples are provided above. Media software cannot be separated by value for customs duties and VAT purposes. Some equipment, e.g. telecommunication, may be imported only by licensed companies. Importation of goods as a contribution to charter capital are exempted from customs duties and VAT. There are also other exempted goods, mostly socially or economically important.

CURRENCY CONTROL

Currency and exchange transactions in Russia are governed by Law «On Currency Regulation and Control» No 173-FZ of December 10, 2003.

In general, Russian residential companies and individuals are not allowed to carry out transactions in foreign currency between one another. Foreign currency transactions with non-Russian residential companies and foreign national individuals are allowed with certain restrictions pertaining to the terms of deals and special controlling documental procedures. There are also hedge mechanisms applicable for the violation of deals terms or for deals considered as capital, e.g. reservation of part of the deal value, special bank account, preliminary registration, provision of guarantee, letter of credit and so on.

Financial and Tax accounting is carried out in rubles and all foreign currency transactions are converted into rubles

Useful files
Overview of Certification and Conformity Assesment System

GOST R Conformity Certificate

Hygienic Certificate

Fire safety Certificate

Federal service of Technological Inspectorate of Russia

Fitosanitary Certificate

Product Certification in Russia

Useful links/additional information about certification
http://www.bisnis.doc
Delivery Issues in Getting Goods to Russia

http://permanent.access.gpo
Certification of goods in Russia

http://www.oiml.org
Main Russian State Metrology Service Scientific Center commemorates centenary

http://www.iso.org
International Organization for Standardization

http://stroyinf.ru
Independent non-profitable organization «Interregional quality center»

http://www.russianengineeringgroup.com/certification_services.html
REG International offers a variety of certification services for every occasion and need possible, and not just for importing goods and equipment into the Russian Federation, but also for other countries in the same region.

http://www.russianengineeringgroup.com/COC.html
GOST Russia Certificate of Conformity (GOST-R COC) is required in order to bring equipment across the border into the Russian Federation. Mandatory certification is required by Russian law. Gosstandart of Russia (GOST-R) is a government organization charged with maintaining and enforcing this certification system.

http://www.russianengineeringgroup.com/COCtrans.pdf
GOST R certification system (Certificate of Conformity)

RUSSIAN LEGISLATION

Russian law in general is based on statutes. Only laws and sublaws (so-called instructions issued by a relevant ministry on the basis of an authorization under a law) are regarded as source of law. Case law is not a source of law. In practice, however, judges use precedents or prior rulings on cases of a similar nature when considering their decisions. If certain situations are not regulated by laws and sublaws then the judge, when considering his ruling, normally refers to court practice. Nevertheless, when drafting adjudications he may refer only to laws and sublaws and not to case law on similar matters, with the exception of Constitutional Court rulings.

Company law comes under the umbrella of civil law. The main source of company law is the Civil Code of the Russian Federation. Where appropriate, the Code makes references to statutes, most importantly to the Federal Law 208-FZ of December 26, 1995 ‘On Joint-Stock Companies’ and to the Federal Law 14-FZ of February 8,1998 ‘On Limited Liability Companies’.

Useful files
Law on Joint Stock Company

Oil and Gas Exploration and Production: Russian Legislation

Franchising in Russia: Main Trends

Useful links
The Federal Law On Technical Regulating

Civil Code of the Russian Federation

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