Russia Tax & Business Guide - Deloitte

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asic facts
Population 143.4m Inflation 12.7% (2005)*
Main languages Russian, other GDP per head US$5,340*
Currency Russian rouble (RUR) GDP growth 6.4% (2005)*
Economic communities Asia Pacific Economic Co-operation, Commonwealth of Independent States
GDP sources 5.4% agriculture, 37.1% industry, 57.5% services
*Economist Intelligence Unit.
Political environment

The Russian Federation, composed of 89 federal subjects, is a presidential system with a bicameral parliament. Vladimir Putin was re-elected president by a wide margin in March 2004. Pro-presidential majorities control both houses of parliament.
Foreign trade and investment
Exports US$245.3bn (2005)* Imports US$125.1bn (2005)*
*Economist Intelligence Unit.

Major exports: Oil, fuel and gas, metals and machinery.

The enlarged EU accounts for more than one-half of RussiaÌs total external trade.

Attracting foreign investment is a top federal priority, but investors often depend on the goodwill of regional authorities and local partners. Authorities have focused on improving the overall investment climate through tax, judicial, banking and customs reforms, rather than providing specific incentives for foreign investors.
Business and financing
Business forms Legal entity (limited liability company, joint stock company (open and closed)); joint activity agreement or simple partnership; branch and representative office

Limited liability companies are the simplest form of conducting business and investors often use them for wholly owned subsidiaries.

The registration procedure for legal entities includes state registration, tax registration, registration with the State Social Funds and registration with the State Statistical Board.

Representative offices and branches are not considered legal entities under Russian law. The registration process for both types includes accreditation, inclusion in the State Register of Accredited Foreign Representative Offices or branches (State Registration Chamber), registration with the State Statistical Board, registration with the tax authorities (regardless of whether the activities are of a taxable nature) and registration with the State Statistical Board. Representative offices should perform non-commercial activities only.

The financial sector is concentrated in the capital, Moscow, and, to a lesser extent, in St Petersburg.

The government controls capital transfers via currency-control regulations. There is a requirement to use special types of bank accounts and a requirement to deposit a certain percentage of the transaction value in a special deposit account in the cases of certain transactions between residents and non-residents. The Central Bank of Russia may also require registration before a resident entity or individual opens a bank account abroad.
Labour environment
Unemployment rate 7.6% (2005)* Minimum wage RUR 1,100 (monthly)
*Economist Intelligence Unit.

Wage levels vary significantly between regions.

Disability benefits, unemployment benefits and the state pension are paid out of social, medical insurance and pension funds, which are in turn funded mainly through the Unified Social Tax (UST). The top rate of UST is 26% of payroll.
Taxation
Corporate profits tax
Main rate 24%

Russian companies are taxed on worldwide income with a credit for foreign tax. Foreign companies that do not conduct business activities in Russia through a permanent establishment are taxed only on Russian-source income. The main profits tax rate is 24%. The rate may be reduced by the regional legislative bodies of the Russian Federation to 20% for certain categories of taxpayers.

Dividends paid by Russian companies to other Russian companies are subject to a final withholding tax of 9%. Dividends paid by/received from Russian companies to/from foreign companies are subject to a withholding tax of 15%, unless otherwise provided by an applicable double-tax treaty.

Interest is generally included in taxable income, but interest received on state and municipal securities is subject to a final withholding tax of 15%. Interest on mortgage bonds and municipal bonds issued before January 1st 2007 for a period of not less than three years is subject to a final 9% withholding tax.
Personal income tax
Flat rate of 13% for residents (30% for non-residents)

The personal tax rate in Russia is 13% for residents. The tax rate for non-residents, who are taxed on Russian-source income only, is 30%. Residents are defined as individuals actually present in Russia for 183 days or more in a calendar year. Domestic and foreign dividends are subject to tax at 9%, which in the case of domestic dividends is withheld by the paying company. Interest on bank deposits is exempt provided it does not exceed the refinancing rate of the Central Bank of Russia for rouble deposits or 9% for foreign-currency deposits. The excess is subject to tax at 35%.
Capital gains
Taxed as income; some long-term gains of individuals are exempt

Capital gains of companies on immovable property are taxed as ordinary income. Gains from the sale of securities are treated as a separate category of income and cannot be reduced by deduction of regular expenses. Capital losses on securities cannot be set off against general income. Certain long-term gains of individuals (residents) are tax-exempt, including gains on immovable and movable property if owned for more than three years. Gains that are not exempt are subject to income tax at normal rates.
Indirect tax
VAT standard rate 18% Other rates 10%, 0%

Value-added tax (VAT) applies to most transactions at the standard rate of 18%. Companies and individual entrepreneurs can apply for exemption from VAT if their taxable revenue for three consecutive months is below RUR 1m (from January 1st 2006Ûbelow RUR 2m). The lower rate of 10% applies to certain foodstuffs, books and medicine. Exports are zero-rated. Major VAT-exempt activities include medical services and sales of medical equipment, passenger transport services, education and banking services. Business entities must initially register for all taxes, including VAT.
Tax administration and compliance
Tax year Corporations and Individuals: calendar year

Companies must submit a profits tax return every quarter, but may elect to report on a monthly basis. Companies are required to make monthly advance payments of tax. However, a permanent establishment of a foreign company may make quarterly rather than monthly payments. An annual tax return must be submitted by March 28th following the reporting year. Employment income of individuals is subject to deduction of tax at source. Individuals receiving income not subject to deduction of tax at source must submit a tax return by April 30th following the end of the tax year.
Additional tax information
Withholding taxes Dividends 15%, Income from international freight 10%, Interest 20%, Royalties 20%. Rates may be reduced by an applicable tax treaty.
Tax treaties Russia has more than 70 tax treaties.
Dividends Subject to withholding tax of 9% when paid in Russia by a Russian company to a Russian company or Russian individual.
Revenue protection There is transfer-pricing and thin-capitalisation legislation.
Groups No provision for group taxation.
Incentives Regional authorities may reduce the regional component of the corporate tax by up to 4%.
Other taxes Excise duties, Import duties, Enterprise property tax, Individual property tax, Land tax, Water tax, Unified social tax, State duty, Mineral extraction tax, Export duties, Transportation tax.