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Permanent establishment

Permanent establishment (PE) is a tax status obtained by a foreign company as a result of regular business activities in Russia. PE is created if a foreign company regularly conducts entrepreneurial activities in Russia at some fixed place.

Entrepreneurial activity is understood as activity aimed at systematically generating income (Clause 1, Article 2 of the Civil Code of the Russian Federation). Moreover, if jobs are created and an employment contract is concluded with an individual, that is, the employee works in an oce, then the organization is obliged to open a permanent representative office. An exception is an employment contract with a remote employee, a civil contract with an individual to perform work (provide services), as well as the implementation by a foreign organization of preparatory and auxiliary activities on the territory of the Russian Federation in the absence of signs of a permanent establishment.

Auxiliary activities include:

Storage of goods

Use and maintaining of facilities only for the storage, display and (or) delivery of goods belonging to this foreign organization before delivery.

Purchasing goods

Maintaining a permanent place of business only for the purpose of purchasing goods by foreign company.

Marketing

Maintenance of a permanent place of business only for the collection, processing and (or) dissemination of information, accounting, marketing, advertising or market research for goods (works, services) sold by a foreign organization, if such activity is not the main (usual) activity of the company.

Signing contracts

maintaining a permanent place of business only for the purpose of simply signing contracts on behalf of foreign organization, if the signing of contracts occurs in accordance with detailed written instructions of the foreign company.

Besides, in July 2023, Law 389-FZ of July 31, 2023 adopted amendments to the Tax Code of the Russian Federation. The amendments prevent the possibility for foreign organizations to avoid establishing a PE oce on the territory of Russia by splitting up activities that constitute a single business process between related organizations. Thus, if any activity carried out by a foreign organization or aliated organization forms a PE in Russia, then any other activity carried out through the same place of activity will also be considered as forming a PE.

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