Taxes in Russia, Taxation in Russia, Taxes system in Russia
Profit Tax in Russia
According to the current Russian legislation the taxpayers of profits tax are Russian organizations and foreign organizations that conduct their activity through so-called "permanent establishment" and receive profits on the territory of the Russian Federation.
It is very important to know that a Representative Office in its usual meaning is not the same as "permanent establishment" in the meaning of the Tax Code.
For the purposes of profits tax "permanent establishment" is defined as a branch, a Representative Office, a division, a bureau, an office, an agency or another separate subdivision or place of regular activity of a foreign organization on the territory of the Russian Federation. This activity may be connected with rendering of services and performance of other kinds of activity involved in the receipt of income on the territory of the Russian Federation. However, preparatory and ancillary (subsidiary) activity of a foreign legal entity doesn't establish "permanent establishment" on the territory of the Russian Federation.
Rates for profits tax in Russia are fixed in the following range:
24% is a general tax rate, 20% tax rate applies for income from foreign organizations' activity that does not establish "permanent establishment" on the territory of the Russian Federation,
15% tax rate applies if a foreign organization has profits in the form of dividends if it takes participation in a Russian legal entity, 10% tax rate applies for the income from use, maintenance and lease of ship, craft, planes and other means of transport in international carriage.
For taking advantageous and legally acceptable decision of profits tax payment for a foreign organization (or its Representative office), the following criteria should be taken into account: the kind of activity of a foreign legal entity, its duration, application of double tax treaties.
Foreign legal entities that conduct their activity on the territory of the Russian Federation should distinguish two meanings that may apply to them in accordance with the Tax Code: "source of incomes" and "source of payment". If a foreign legal entity is not registered with Tax Authorities, but has the "source of payment" on the territory of the Russian Federation, its tax agent has the duty to pay tax from the "source of payment".
If the state where a foreign legal entity is incorporated has a double tax treaty with the Russian Federation, its provisions may apply in two ways:
1. A foreign legal entity that is not registered with Tax Authorities may obtain (seek for) preliminary exemption from taxation upon condition that this legal entity submits the document confirming its permanent place of business and payment of taxes on the territory of the state where it is incorporated.
2. The second way is "tax refund". In this regard a foreign legal entity should submit to Tax Authorities the following documents:
• a claim (application) to Tax Authorities for tax refund
• a document confirming a permanent place of business of a foreign legal entity in the state of its incorporation that has double tax treaty with the Russian Federation
• a copy of a contract (or other document) according to which a foreign legal entity received income
• copy of payment documents confirming payment of taxes to the budget of the Russian Federation
According to the Tax Code refund of a tax sum is to be made in one month from the day of submission of all necessary documents to tax authorities.
Personal Income Tax
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.
A foreign citizen is a tax resident of the Russian Federation if he/she resides on the territory of the Russian Federation not less than 183 days of the calendar year.
The tax rates for personal income tax are the following: 13% - on income received by tax residents, 30% - on income received by tax non-residents on the territory of the Russian Federation, 35% - on certain kinds of income, and 6% - on income in the form of dividends.
An individual who is a non-resident of the Russian Federation may be exempt from taxation by Russian tax authorities, provided that he/she introduces (forwards) to Russian tax authorities an official confirmation that he/she 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 of 13% or 30% tax rate depending on the period of time he/she resides on the territory of the Russian Federation.