Russia

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In recent years, Russia has made a number of significant changes to its tax legislation, bringing the Russian tax system closer to OECD / G20 standards and making the country a more predictable place for doing business. Russia has significantly reworked its traansfer pricing rules and introduced rules on controlled foreign companies, the beneficial ownership concept, the concept of tax residency based on management and the control principle in line with OECD guidelines and the BEPS initiative. The government also has negotiated changes to a wide range of Double Tax Treaties (including ones with major European holding jurisdictions) in order to improve transparency and boost the attractiveness of Russia as an investment destination.

At 20%, Russia’s main profit tax rate remains one of the lowest among major economies, and the government has introduced a number of tax incentives that can reduce the rate even further. Special tax regimes have been established for specific regions and industries to encourage investment and innovation. This guide provides an up to-date overview of Russian tax policy and legislation relevant for companies considering doing business here.

  • Population: 144.5  million
  • Form of government: Federal semi-presidential constitutional
  • Official & spoken languages: Russian
  • Currency: Russian Ruble (₽) (RUB)
  • Time zone: EET (UTC+2 to +12)
  • GDP (PPP): $3.9 triillion
  • GDP (PPP)/per capita: $25.185
  • Average salary: RUB 36703 ($635,26)
  • Unemployment: 5.4%
  • Major trading partners: China, The Netherlands, Germany, Italy, Japan, the United States, Belarus

     

Advantages of doing business in Russia

  • From 2000 to 2010, Russia’s GDP growth averaged 5.3%, and that’s including a fall of 7.8% in 2009; it’s also the world’s seventh largest economy by purchasing power parity.
  • The economy is expected to grow from $2 trillion in 2011 to over $3.2 trillion in 2017; coupled with one of the lowest levels of public debt of any major economy.
  • There are over 140 million consumers with increasing incomes, and one of the most highly skilled workforces due to a strong education.
  • The country has huge array of natural resources, including 35% of the worlds gas production and exports and 23% of the worlds forest resources.
  • They have a very attractive taxation system that’s aimed at promoting investments and developing the economy.

 

Disadvantages of doing business in Russia

  • It can be difficult to obtain real estate; administrative processes can be lengthy; and expenses are high, the same can be said for import taxes.
  • Common business tactics are unenforceable and negotiations often occur in place of contracts.
  • The business policies and procedures of Russia change often, so you need to stay up to date to make sure you’re not violating any laws.
  • Then there’s the often heard about corruption. There’s seemingly unavoidable bribery; overcharged licenses, registrations and inspections; payoffs to organized crime; and questionable safety, environmental and customs violations that can be claimed.

While there are some obvious difficulties and rather questionable practices, this lucrative market is not out of reach, but it’s imperative that you do your research, look at the market you want to enter and find other success stories that you can model yourself on. There have been many companies that have found success, but there have also been a number of companies that have struggled with establishing themselves or flat out failed; A big plus is if you can keep a positive relationship with the Russian government, they’re not the best foe to have — this is going to be a lot easier if you learn Russian, take some classes and get your Russian language level up to par so that you can effectively communicate, inquire if you need any more info about this. Remember, the trick is to cover all angles, if you set yourself up properly there’s a big economy there waiting for you to take advantage of.

 

Ease of Doing Business ranking

Overall rank 2017: rank 40th (change in rank: -2)
– Starting a business: rank 26
– Dealing with construction permits: rank 115
– Getting electricity: rank 30
– Registering property: rank 9
– Getting credit: rank 44
– Protecting minority investors: rank 53
– Paying taxes: rank 45
– Trading across borders rank 140
– Enforcing contract: rank 12
– Resolving Insolvency: rank 51

 

New businesses registered in 2014: 427388

Freedom of living Index: Russia

Overall rank 2016: 141th (44/100 points)
– Property rights: 20/100 points
– Freedom from taxes: 82/100 points
– Freedom of speech/religion: 19/100 points
– Limited government: 56/100 points
– Gun rights: 31/100 points
– Drug rights: 25/100 points
– Freedom from corruption: 29/100 points
– Freedom from inflation: 863/100 points
– Business freedom: 72/100 points

 

Taxes in Russia

  • Residence:  An entity is a Russian resident if it is incorporated in Russia, if its actual place of management is in Russia or if it is deemed to be a Russian resident under an applicable tax treaty
  • Basis: Russian tax residents are taxed on worldwide income; foreign entities are taxed on income from commercial activities undertaken in Russia and on passive income from Russian sources.
  • Taxable income: Profits tax is imposed on a company’s profits, which consist of business/trading income, passive income and capital gains. Normal business expenses may be deducted in calculating profits, provided they are economically justified, incurred in the generation of income and supported by adequate documentation
  • Taxation of dividends: Dividends received by a Russian entity from Russian and foreign entities generally are subject to tax at a rate of 13% (but see under “Participation exemption,” below.)
  • Losses: Losses may be carried forward for 10 years (except for losses derived from activities subject to a 0% profits tax rate). The carryback of losses is not permitted
  • Foreign tax credit: Foreign tax paid may be credited against Russian tax on the same profits, but the credit is limited to the amount of Russian tax payable on the foreign income
  • Participation exemption: To qualify for the participation exemption with regard to dividend income, a Russian company must hold a participation of at least 50% for at least 365 days in a calendar year. A foreign investee must not be a resident in a “black list” jurisdiction. A participation exemption is available for capital gains realized on the sale of unlisted shares and participations in Russian companies, and listed shares in high-technology Russian companies acquired
Taxable income: 13 %
VAT registration: A foreign entity cannot register for VAT purposes only; the general tax registration is applicable for all taxes.
– VAT Rates: 18%
Surtax: No
Withholding tax (general):
– From Dividends Dividends paid to a foreign entity or to a nonresident individual are subject to a 15% withholding tax, unless the rate is reduced under a tax treaty.x.
– From Royalties Royalties paid to a nonresident are subject to a 20% withholding tax, unless the rate is reduced under a tax treaty.
– From Interests Interest paid to a nonresident is subject to a 20% withholding tax, unless the rate is reduced under a tax treaty. Russian companies are exempt from the obligation to withhold income tax from Russian-source income of foreign legal entities within Eurobond-like structures, under certain conditions.
Transfer tax: No
Real property tax: Property tax is a regional tax imposed under local legislation. The maximum rate is up to 2.2% where the tax base is calculated as the depreciated book value, and up to 1.5% where the tax base is calculated as the cadastral value. The tax base includes immovable fixed assets and certain movable fixed assets owned by the taxpayer, excluding land (which is subject to land tax) and movable property booked as fixed assets from 2013. Generally, the tax base is calculated based on the depreciated book value of the assets as of the balance sheet date. For certain types of administrative, business and trading premises (e.g. real estate owned by foreign companies and not allocated to a permanent establishment in Russia and dwelling houses and premises that are not booked as fixed assets for accounting purposes), the tax base is estimated as the cadastral value of the real estate..
Social security: The employer is required to make pay-related contributions to pension, social and medical insurance funds. The rates of social security contributions for 2016 are as follows: for pension contributions, the rate is 22% of an employee’s remuneration up to RUB 796,000, plus 10% of any excess over this cap; for social insurance contributions, the rate is 2.9% of an employee’s remuneration up to RUB 718,000 (the rate is 1.8% of an employee’s remuneration in the case of foreign nationals temporary staying in Russia); and for medical insurance, the rate is 5.1% of the full amount of remuneration. Mandatory accident insurance contributions are paid separately from the above insurance contributions to the Russian Social Insurance Fund, at rates ranging from 0.2% to 8.5% of the full amount of an individual’s employment income, depending on the degree of inherent risk in the employee’s occupation. Income earned by foreign employees hired under the highlyqualified specialist regime is exempt from social security contributions (only accident insurance contributions are due). Most foreign nationals, including citizens of the Eurasian Economic Union are subject to the same contributions as Russian nationals. Employees are not obligated to pay social security contributions in Russia.total income, capped at BGN 2,600 per month. Minimum thresholds per position and industry also apply.
Anti-avoidance rules:
– Transfer pricing Comprehensive transfer pricing provisions, which are substantially in line with OECD principles, apply. The rules include detailed documentation requirements and allow for the possibility of obtaining an advance pricing agreement.
– Thin capitalization rule The thin capitalization rules restrict the deductibility of interest on loans to related legal entities and apply where the lender is: • A foreign company that owns, directly or indirectly, more than 20% of the charter capital of a Russian company; • A Russian company that is an affiliate of such a foreign company; or • Any company to which such Russian-affiliated or foreign company undertakes to act as a guarantor, or to secure in any other way the discharge of the loan by the Russian borrower. The maximum debt-to-equity ratio is 3:1 for related legal entities in general, and 12.5:1 for banks and leasing companies. Excess interest is nondeductible by the borrower for Russian profits tax purposes, recharacterized as a dividend distribution and subject to dividend withholding tax.
– Disclosure requirements Certain information must be disclosed to the tax agent on persons exercising rights to certain securities issued by Russian entities and accounted for in the depositary account of a foreign nominee holder (including certain types of shares and bonds), foreign authorized holder or depositary program. This information may be made available to the tax authorities in some cases. Where the information is not disclosed, a 30% withholding tax may be applied to the income derived from such securities (except dividends). Russian tax residents are required to notify the Russian tax authorities of the following: • A direct and/or indirect participation in a foreign company, if the participation exceeds 10%; • The establishment of a foreign structure that is not a legal entity, as well as the control over such structures or actual rights to the income received by such structures; and • Any interest in a CFC in which Russian tax residents exercise control. Foreign entities owning immovable property in Russia that is subject to property tax are required to disclose information regarding their direct and indirect shareholders to the Russian tax authorities.

Compliance for corporation:

  • Tax year: Calendar year
  • Consolidated returns: Russian companies forming a group with 90% (or more) direct or indirect ownership may file a consolidated tax return for the preceding calendar year if tax payments totaled exceeded RUB 10 billion and revenue and assets exceeded RUB 100 billion and RUB 300 billion, respective
  • Filling requirements: The annual profits tax return must be filed by 28 March after the close of the previous tax year.
  • Penalties: Penalties generally are 20% of the relevant tax (or 40% if the default is intentional), plus late payment interest and fixed penalties. Criminal sanctions also may apply..
  • Rulings: Rulings generally are not granted, but an advance pricing agreement may be obtained under the transfer pricing rules.
  • Tax authorities:  Federal Tax Authority

Services for corporations interested in Russia

  • Consultation and advisory (business, tax, legal) services before incorporation / during your business operations in Russia
  • Assistance in incorporation process: Tailor made company formation or shelf companies available
  • Administration services available for new companies incorporated through Novasigma

For corporations operating in Russia

  • Banking and financial solutions for Russian company
  • Accounting and Audit services for Russian company
  • Legal services for Russian company

For individuals and families interested in Russia

  • Consultation and advisory (tax, legal) services before re-located to Russia
  • Assistance in immigration process when moving to Bulgaria (residency permanent, work permit, tax residency)
  • Incorporation and administration services for your privately held Russian holding company

For individuals and families who hold the Russian residency

  • Banking services in Russia for private persons
  • Local and international accounting services for Russian tax residents
  • Local and international legal services for Russian residents

News and business opportunities in Russia

  • iPhone with the image of Vladimir Putin
    World Bank Says Russia Is Now Better Than These Countries
  • Novasigma expanding into the Russian market
  • Novasigma will be attending WealthPro Moscow 2017

Interested in Russia? Please leave us a message and we will get back to you shortly.

In cases KYC or/and Due Diligence process required Novasigma requires a personal meeting with all its new clients before proceeding any assignment

Other jurisdictions:

  • Bulgaria
  • Estonia
  • Finland
  • Georgia
  • Germany
  • Gibraltar
  • Latvia
  • Mauritius Novasigma
    Mauritius
  • Norway
  • Russia
  • Seychelles
  • Singapore
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  • United Kingdom

 

Available services

  • Consulting & Professional Advisory Services
  • How to register a company in United Kingdom
    Incorporation & Administration Services
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  • Novasigma offers citizenship programs with Caribian passports and tax residencies with a immigration service
    Tax Residencies & Citizenship programs

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