Taxes for foreign companies in Russia
International investments are an essential part of the Russian economy, by creating a steady flow of tens of billions of dollars and creating the country a significant income with an also huge number of working spaces. By inviting foreign investors, the law gives them a national set of rights and responsibilities, making international investors have as many rights as Russian companies and investors. It affects not just the rights, but also the responsibilities of such companies, and taxation is also one of the duties of any foreign company working in Russia.
Which rules are used for taxation, and which status is most profitable to work with?
Tax residency in Russia — what does the law say?
The most important is the question about tax residency — is an organization a tax resident of Russia, then all the rules applied to it are the same as the rules for Russian companies. Russian residency also causes the company to pay taxes for income earned out of the territory of Russia.
By Russian law the following companies can have residency:
- Foreign companies that are tax residents because of the international agreements signed by Russia
- Foreign companies have a permanent establishment in the Russian Federation.
How to confirm the tax resident status
The foreign company will need to proof and confirm a tax residency.
Russian tax laws do not give defined criteria or requirements for such documents. Depending on the country of origin, it may be in a different form. The main function is real proof that this company complies with the laws of a certain country and is a tax resident.
If this is a document of a foreign country, which has an agreement with Russia, then this document needs to be certified by the fiscal organ of that country and translated to the Russian language.
To receive a certificate of tax residence, you need to send a request in a special form and address it to the Tax Authorities. More information on the documents needed can be found on the site of the Tax Authorities.
When must a
non-resident company apply for tax residency?
Besides, the legislation makes it necessary to apply for residency if:
- The company has an affiliate in Russia, such as Branch, Representative office.
- The company imports products from Russia
- The company has property in Russia or owns transport there.
- The company has to pay taxes for using resources in Russia.
The company that is using an affiliate must send a request 30 days after it starts working.
The companies can file requests in different places. For example, those that pay tax for gathering natural resources have to register in the place where they gather, and owners of the real estate register in the city where that real estate is located.
How is registration done?
To register on the list, a company needs to find the local Tax Authority office. A company is also registered in the place where it does business, and the owner of the company has to file papers, confirming his decision.
The forms of such decisions are defined by the Tax Authorities too.
In case that the company is not an investor, the request must comply with the different conditions defined in the Order No.117 of the Ministry of Finance. Documents include:
- Confirmation of registration or a paper from the Trade register
- Statutory documents of the company
- Documents confirming the CEO authorities
- Documents from Tax Authorities of the country of origin.
- Documents of accreditation, if this is an affiliate of the company
- Documents allowing usage of territory and resources
- Power of attorney
All the documents may look and be named differently, depending on the country of origin. All the listed documents have to be apostilled and legalized.
How does a foreign company get in the Russian tax register?
There is a different definition for companies that work in Russia through a representative company and ones that work without it.
A representative company is considered active from the moment the main company starts doing business through it and receiving income from sources in Russia.
If the company’s representative is doing assistant or preparation work, it is not considered active. In other words, it doesn’t lead to permanent establishment set up. Such auxiliary works include:
- Using warehouses for storing goods of the main or representative organization. Until the moment it can start selling said production
- Organizing a warehouse for raw resources
- Organizing a warehouse for storing goods of other companies
- Ranting a space where administrative work, like bookkeeping and other kinds of paperwork, may be done.
The tax law makes sure that these companies receive different tax requirements depending on whether they have a representative organization. We will talk in more detail about companies with representatives.
How is an organization with a representative taxed?
An affiliate, bureau, division, or agency of a company, located in another country, are all considered representatives by Russian law. If an organization has a representative, then the following kinds of income are also taxed:
- The overall income of the company, minus the amount of money spent on raw resources
- Usage of the company’s property, minus the money spent on advertising and other ways of increasing this income.
- Any other income received on the territory of Russia
The information about income is delivered complying with general tax laws. The information about income is delivered to the local tax police office.
How is an organization without a representative taxed
Information is submitted at the end of every tax period in the shape of the tax declaration. Every division of the company pays taxes and delivers information to the tax police office at the place where it works.
An organization without a representative is taxed in accordance with general laws, and income is included from other sources, which are different from its commercial work:
- Dividends from participating in Russian companies and the income derived from using the property of other companies.
- Income in interest, received by credit and loans, includes the income derived from government bonds.
- Income from using rights on intellectual property, such as books and films, any other kind of arts
- Income from selling real estate and renting it out to people.
- Income from pies and selling stocks
- Income from legal expenses such as fines
These types of income are received from Russian sources because they are sourced in Russia only. The organization that pays the money also withholds part of it and translates it to the tax police. This means that the company or person who pays money to the foreign organization should also act as an agent of the tax police and deliver that money to them.
All other incomes that the corporation receives by itself are declared and taxed by the company.
How to prevent double taxation
An organization with a foreign country of origin is required to pay taxes to the Russian government from all the sources located on the territory of the Russian Federation. The company is at risk of paying the tax twice, especially if the country of origin tries to withhold a tax. Double taxation treaties can help to avoid double taxation.
Treaties specify a special taxation regime, where the foreign company pays less tax and, in some cases, pays no taxes at all. For example, when a company already paid taxes to the Russian budget, it does not pay part of its taxes in the country of origin.
This means that the representative of the foreign company has to show a legalized proof of residency in the country of origin, to make sure that there is an agreement.
For example, in 2019 there were agreements between the Russian Federation and 83 countries, but only 80 countries actually used these agreements.
Foreign companies in special economic zones
This regime of taxation works only in special territories that are controlled by special laws. The territories are also usually characterized by being special in some way, for example, having a high tourist value or having a port nearby. Overall there are 25 zones in Russia, all of which have special taxation rules.
In these zones, the tax may be as low as 12.5 percent. But the company must be a resident of that particular economic zone. More about this is available on the site of the Russian Tax Authorities.
Taxation regime for sharing production
The taxation regime for sharing production is regulated by Chapter 26.4 of the Russian Tax Codex. The special regime applies to companies that are investors. These companies should also have agreements with Russia about excavating natural resources from the continent.
The tax regime works on the entire time of the agreement’s duration, and it is expected that the company will pay the following types of taxes:
- Tax for income
- Tax on harvesting raw resources.
- Tax on land and water
- Tax on environment
- Tax on imports and exports
All taxes are paid differently. For example, income tax may be exacted only for income after the expenses are subtracted. Also, the law has a number of easements and compensations for companies.
The tax regime for a concession agreement
The specifics of this agreement is that it hands over the ability to use a complex of rights, such as a trademark and a company name to a different owner. In this case, the trademark name and other rights are given to a company in the Russian Federation. The company providing the rights might even be located out of Russia, but it still has to pay taxes.
Thus, when filing an agreement with a company from Russia, the foreign company receives an income from Russia, making it liable to pay taxes to Russia.
Tax easements for foreign companies
Tax easements that a foreign entrepreneur may ask for, are separated into two categories:
- Easements, guaranteed to foreign investors
- Easements offered due to international agreements
The first group of easements is going to affect people that are foreign investors, applying to companies that work on the territory of RF from abroad through an affiliate or branch. The company may request easements for paying import tax. Also, it may petition other easements by referring to municipal and local regional laws.
The second group of easements is only accessible through international agreements. As a rule, foreign companies with easements use an additional agreement that prevents double taxation. Russian Federation limits some types of taxes by setting lower percentages on them. These easements prevent discrimination of legal entities.
Taxes for foreign companies that do services in Russia
If the CEO of a company is not located in Russia, this does not mean the company is forbidden from doing services on the territory of Russia. The most important qualifier for a company is for it to pay all the taxes.
Aside from income tax, there may also be a tax for VAT inclusion. This applies to not just material, but also intellectual services. Such services include consulting services and marketing advice. In this case, it is only necessary to pay VAT if the company works directly in the Russian Federation.
The second peculiarity of such work is that the resident who receives such service becomes an agent of tax for the foreign company, forcing him to withhold some money from the payment in order to give it to the tax police.
Taxing foreign companies is special in some ways, depending on what work they do and how they operate. In most cases, everything is exactly the same as for local companies in Russia, but in order to prevent double taxation, some taxes may be lowered.
Also, if there is no constant representative of a company in the Russian Federation, then its Russian partners act as its tax agents. If an affiliate is available, it makes things simpler, but still does not make it a resident. The main condition for the company to receive residency is to have organs of control in Russia.