Accounting in Foreign Representative Offices

The Russian Federation is one of the most promising economical regions of the world. This is why leading international companies seek to do their business in this country. For this purpose, international companies open their branches and representative offices in Russia. This creates the need for bookkeeping and tax accounting in the country of their accreditation, i. e. in this country.

Bookkeeping and tax accounting are based on applicable international agreements and the Russian Federation’s laws in effect; and in certain cases established by international agreements and the Russian Federation’s laws, also on the legislation of foreign states.

Problems related to bookkeeping in foreign representative offices are mainly caused by the variety of regulations — prevailing international agreements as well as provisions of the domestic legislation of the Russian Federation and foreign states. First of all, it is necessary to decide which legislation, Russian or foreign, you are going to comply with when it comes to bookkeeping in your representative office (branch).

Our long-term experience shows that it is more reasonable to keep records in accordance with the Russian Federation’s laws as the bookkeeping system can serve as the basis for tax accounting, which is used to calculate taxes.

Everyone doing business in Russia has repeatedly faced the problem of tax calculation. That said, businesses often struggle with Russian taxes. This is because of the Russian tax system’s complexity, or rather its entanglement, which, combined with international taxation agreements, makes it absolutely difficult-to-understand.

How properly taxes are calculated depends on many factors, primarily on whether the activities of a foreign organization in Russia create the permanent representation in terms of taxation. Let us emphasize that it is the tax status of a foreign representative office (branch) in Russia that should be determined first and foremost (it may be different from the civil legal form of the representative office or branch).

The next question is when should international tax agreements be applied to calculate taxes, and when — the Russian Federation’s laws? You should understand that the fact itself that there is an agreement for avoidance of double taxation with a particular state does mean it is automatically applied. For that to happen, a number of conditions stipulated by the Russian Federation’s Tax Code should be met.

And finally, to calculate the tax base for almost any tax levied in the Russian Federation, you should have perfect knowledge of the Russian Federation’s Tax Code. Notice also that a large number of issues arising in the course of practical activities are not resolved within the framework of the Tax Code; instead, there are relevant explanations issued by the Ministry of Finance of Russia and tax authorities as well as judicial practice, which is often quite controversial.

Based on all the above, it is a good idea to entrust bookkeeping in a foreign representative office (branch) to professionals possessing the relevant experience in this field, since this is one of the most complex and intricate types of accounting today. Involving a professional team allows our foreign partners to focus on their business only and have no concern about keeping records and paying proper taxes.

And finally, to calculate the tax base for almost any tax levied in the Russian Federation, you should have perfect knowledge of the Russian Federation’s Tax Code. Notice also that a large number of issues arising in the course of practical activities are not resolved within the framework of the Tax Code; instead, there are relevant explanations issued by the Ministry of Finance of Russia and tax authorities as well as judicial practice, which is often quite controversial.

"Outsourcing Solutions" has been helping foreign companies to do their business in the Russian Federation for more than 15 years. We have accumulated some experience in keeping records in foreign representative offices (branches). Our young and promising team grows together with our customers.

We enable our clients to focus exclusively on their business in Russia, while we take over accounting and tax issues!

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