Home / Doing business in Russia 2020 / Tax system / Corporate taxation
  1. Introduction
    1. Political and administrative structure
    2. Legal environment
  2. Common forms of business structures for foreign investors
    1. Main types of structure
    2. Registration, liquidation and reorganisation of business structures
    3. Shareholders’ and participants’ agreements
    4. Strategic industries
  3. Anti-monopoly issues
    1. General legal and regulatory framework
    2. Scope of application of the Competition Law
    3. Anti-competitive practices and restriction of competition
    4. Liability
  4. Tax system
    1. General approach
    2. Corporate taxation
    3. Incentives
    4. Special tax regimes
    5. Taxation of individuals
    6. Double taxation treaties
  5. Customs regulations
    1. General approach
    2. Trade between EEU and non-EEU countries
    3. Mutual trade between the EEU members
  6. Currency control
    1. Foreign currency transactions
    2. Consequences of breach/Penalties
  7. Lending in Russia
    1. Lending documents and governing law
    2. Jurisdiction
    3. International finance transactions and repatriation requirements
    4. Security interests
    5. Recognition of security trusts
    6. Syndicated loans
    7. Enforcement
    8. Suretyships and guarantees
    9. Bankruptcy considerations
    10. Other lending related issues
  8. Employment and migration
    1. Formalising the employment relationship
    2. Managing employment relationships
    3. Terminating an employment agreement
    4. Specifics of employing foreign nationals
  9. Personal data protection
    1. General approach
    2. Scope of the Data Protection Law
    3. Liability
    4. Right to be forgotten
  10. Intellectual property
    1. General approach
    2. Contractual aspects of intellectual property rights
    3. Rights over the results of intellectual activity
    4. Company names, trade names, trademarks and appellations of origin
    5. Intellectual property rights infringements
    6. IP Court
  11. Advertising issues
    1. General approach
    2. Scope of application of the Advertising Law
    3. Violations of the Advertising Law
    4. Liability
  12. Anti-corruption and compliance
    1. General approach
    2. Legal framework
    3. Compliance requirements for companies
    4. Concept of corruption in Russian law
    5. Possible targets of bribery
    6. Liability and penalties for corruption
    7. Example of sector-specific anti-corruption measures
  13. Real estate and construction
    1. Rights to real estate
    2. Real estate transactions
    3. Resolution of real estate disputes
    4. Planning and construction issues
  14. Corporate bankruptcy
    1. Insolvency criteria
    2. Stages of bankruptcy proceedings
  15. Import substitution and production localisation in Russia
    1. Measures affecting goods importation and current import substitution legislation
    2. Localisation incentives
    3. Sector-specific impact of import restrictions and localisation requirements
  16. Banking sector
    1. Legislative and regulatory framework
    2. Licensing and operations
    3. Deposit insurance
    4. The anti-money laundering law
    5. Bank secrecy
    6. FATCA and CRS
  17. Environment, energy efficiency and renewables
    1. Environment
    2. Energy efficiency
    3. Renewables
  18. Infrastructure and public private partnerships
    1. General approach
    2. Key PPP legislation
    3. Russian PPP environment
    4. Financing
    5. Legal issues
    6. Prospects for infrastructure projects
  19. Oil & gas
    1. Legislative framework
    2. Ownership and licensing
    3. Restrictions on foreign investors
    4. Licences
    5. PSAs

Key contacts

Contact
Tissot Dominique
Dominique Tissot
Partner
Head of Tax | Head of Energy Efficiency & Renewables
Safaryan Hayk
Hayk Safaryan
Partner
Head of Customs

Corporate taxation

Corporate profits tax

 
Taxpayers

Taxpayers are defined as:

  • Russian companies that pay tax on their worldwide income; and
  • foreign companies that conduct business in Russia through a permanent establishment and/or are in receipt of income from a Russian source.
Permanent establishments

Scope

The Tax Code defines “permanent establishment” as a representative office, branch, division or any other separate fixed place of activity through which a foreign company regularly engages in certain business activities (as specified in the Tax Code) in Russia.

If a foreign company does not have a permanent establishment, it is not subject to Russian profits tax. Any Russian-sourced income (interest, dividends, royalties, etc.) will subsequently be subject to withholding tax.

If a foreign company conducts any of the activities specified in the Tax Code through a dependent agent who represents the company and acts on its behalf, it may also be considered as having a permanent establishment in Russia.

Since 2017, the following activities are not considered to give rise to a “permanent establishment”:

  • functions performed by a foreign investment fund’s managing company in Russia; and
  • activities of a foreign company which are carried out through a broker, commissioner, manager of a foreign investment fund, professional participants of the Russian stock exchange market or any other person acting in the framework of its main activities.

Consequences

As a general rule, a foreign company has the right to allocate income and expenses to its Russian permanent establishment if:

  • there is a DTT between Russia and the respective country; and
  • the possibility of this allocation is provided for in that DTT.

The costs of a foreign company may be allocated to its Russian permanent establishment, provided that such costs were incurred for the purpose of that permanent establishment.

In the absence of a DTT, only the expenses incurred by the permanent establishment may be deducted for tax purposes.

Definition of tax residency

Foreign companies may be deemed Russian tax residents if certain “key” and “auxiliary” criteria are met.

The key criteria are as follows:

  • the activities of the executive body of the legal entity are regularly exercised in Russia, and more so than in any other country; and
  • key corporate officials of the legal entity perform their actual daily management activities in Russia.

Auxiliary criteria apply by default when it is impossible to recognise a foreign company as a tax resident by using the key criteria above.

The list of auxiliary criteria notably includes the preparation of accounting and financial statements in Russia, as well as operational personnel management in Russia and record keeping in Russia.

Tax base

The tax base is the total income received by the taxpayer less income exempted from taxation and expenses, as defined by the Tax Code.

The types of income that are exempt from profits tax include, by way of example:

  • income in the form of property received by the Russian company from a parent company (based in a state other than a low-tax jurisdiction included in the Russian Ministry of Finance’s black list), a subsidiary or an individual, if the ownership of the recipient or the transferor in the capital of the other party is more than 50%, and the property received (excluding money) is not disposed of within one year from the date of receipt;
  • income in the form of property and non-property rights transferred to the Russian company by its parent company for the purpose of an increase in the net assets of the taxpayer;
  • income gained from revaluation of fixed assets and securities;
  • income in the form of property received as a contribution to a company’s charter capital; and
  • the difference between the nominal value of shares and the value of shares gained by a shareholder as a result of an increase in share capital.
Deductibility of expenses

Expenses are generally recognised on an accrual basis. They are deductible for profits tax purposes if they are related to the taxpayer’s income and if they are economically justified and evidenced by the requisite documentation. The tax authorities are stringent in their application of these criteria.

The law specifies certain non-deductible expenses, such as:

  • the cost of assets transferred free-of-charge;
  • any penalty payments made to the budget; and
  • any employee remuneration not provided for in the relevant labour contracts, etc.

Some types of expenses are subject to limitations on tax deductibility:

  • representative expenses: up to 4% of payroll;
  • сertain types of advertising expenses: up to 1% of revenues;
  • pension and life insurance for employees: 12% of payroll;
  • medical insurance for employees: 6% of payroll; and
  • with respect to interest on loans and other borrowings:
    — for rouble loans, from 75% up to 125% of the Central Bank of Russia key rate since 1 January 2016;
    — for loans in Euro, from EURIBOR +4% up to EURIBOR +7%; and
    — for loans in US dollars, from LIBOR +4% up to LIBOR +7%.

If the interest rate under a controlled loan is outside the above parameters, it must meet the requirements of the transfer pricing rules (Please see the Transfer pricing section). 

Interest is also subject to thin capitalisation rules, with the applicable debt-to-equity ratio being equal to 3:1 (12.5:1 for banks and leasing companies). 

In 2017, thin capitalisation rules were amended. Notably, controlled debt is since then calculated with reference to Russian taxpayers’ aggregate debt obligations to foreign related parties (or to Russian companies which are related parties of foreign companies).

Certain DTTs with Russia may provide for exemptions from the deductibility limitations set forth by Russian legislation for specific types of expenses.

Depreciation

Depreciation should be calculated separately for each depreciable asset depending on the depreciation group it is classified as. The method applied should be clearly explained in the taxpayer’s accounting policy. Once chosen, the accounting method may not be modified more than once in five years starting from the beginning of the financial year (1 January to 31 December).

Two depreciation methods are available for profits tax purposes:

  • the straight-line method; and
  • the reducing balance method.

Depreciable property includes fixed and intangible assets with a useful life of at least one year and an initial value exceeding RUB 100,000 (EUR 1,4301).

The useful life of depreciable fixed assets is determined, within certain limits, based on a classification adopted by the Russian Government. For intangible assets, the useful life is the utilisation period defined by any agreement (with a default provision of ten years). The tax base for a fixed asset includes all costs incurred in order to place the asset in service for production. Accelerated depreciation is permitted in cases stipulated by the Tax Code (e.g. for leased property under financial lease).

Certain assets (such as environmental facilities land use facilities, nature facilities, financial instruments and works of arts) are not subject to depreciation.

Losses

Losses can be carried forward and offset against future taxable profits, with the exception of some specific cases, such as under partnership agreements, or in certain types of reorganisation in Russia.

From 2017 until 2021 inclusive, offsetting losses from previous periods is temporarily restricted in terms of the amounts of losses to be carried forward. As a result of such a restriction, the reduction of the tax base should not exceed 50% of the losses incurred in previous years. Losses from the sale of fixed assets are recognised evenly over the remaining useful life of the assets.

If losses relate to different tax periods, they should be carried forward consistently according to the order in which they took place.

Since 2017, taxpayers continue to actively apply the rules on the offsetting of losses of previous tax periods.

Transfer pricing

The Tax Code contains a specific section dedicated to transfer pricing principles, the tax supervision of transactions between related parties and advance pricing agreements.

Controlled transactions

The list of controlled transactions under the Russian transfer pricing rules includes, among other things, cross-border related-party transactions with a value up to RUB 60m (EUR 858,000) and certain domestic transactions exceeding RUB 1bn (EUR 14.3m).

Since1 January 2019, domestic transactions between related parties are no longer subject to control, except when the parties to a transaction are subject to different tax treatment in Russia.

Transactions between the members of a Russian consolidated group of taxpayers are excluded from the list.

The list of related parties is relatively extensive. In general, related parties are identified when “the specifics of relations between them may affect the conditions and/or results of the transactions entered into by such parties, and/or the financial results of their activities or the activities of parties that they represent”.

Specifically, the list of related parties includes:

  • two companies, where one holds more than a 25% stake in the other, directly or indirectly;
  • a company and an individual holding more than a 25% stake, directly or indirectly;
  • two companies with the same parent company that holds more than a 25% stake in each company;
  • a company and its general director, or companies with the same general director; and
  • groups of individuals/companies with more than a 50% stake.

Methods

Russian legislation provides for the following five transfer pricing methods:

  • comparable uncontrolled price method (CUP), which has priority;
  • resale minus method;
  • cost plus method;
  • comparable profitability method; and
  • profit split method (treated as the “last resort” method).

These methods are in line with the transfer pricing practices of EU member states and, in particular, the OECD Transfer Pricing Guidelines.

Each taxpayer can select the method it wishes to apply (and may even choose to use a combination of methods, or another method not expressly provided for by the Tax Code), provided it documents the reasons for this choice.

Advance Pricing Agreements

In 2018, The Russian Ministry of Finance allowed the biggest taxpayers in Russia to enter into advance pricing agreements with the Russian Federal Tax Service.

This type of agreement allows minimising tax risks related to the chosen transfer pricing methodology in controlled cross-border transactions.

Advance pricing agreements replace the annual obligation of taxpayers to file special transfer pricing documentation and can be concluded for a period from three to five years.

Reporting and documentation requirements

Taxpayers are subject to an overall responsibility to prepare documentation justifying the prices applied in all transactions specified as controlled. Upon request from the tax authorities (which may be submitted from 1 June of the year following the year of the controlled transaction), taxpayers must submit the requested documentation.

In addition, companies are obliged on a yearly basis (before 20 May) to notify their local tax inspectorates of all controlled transactions concluded between the same related parties during the previous calendar year. The notifications should contain general information on (i) the subject matter of the controlled transactions; (ii) the parties involved; (iii) the transfer pricing methods applied in the definition of prices; and (iv) the amount of profits received and expenses incurred as a result of these transactions.

On 1 January 2018, new transfer pricing requirements for multinational groups of companies (“MGCs”) came into force.

The new rules relate to MGC-participants’ obligation to prepare and provide “country reporting”. The content of the new reporting is in line with the OECD principles for “three-tier documentation systems”.

Country reporting consists of the following types of reporting:

  • notification of participation in an MGC;
  • country report (which corresponds to “CbCR” under OECD principles);
  • global documentation (which corresponds to a “master file” under OECD principles);
  • national documentation (which corresponds to a “local file” under OECD principles).

Certain Russian taxpayers may be wholly or partly exempt from the new reporting requirements if such obligations are met by other members of the relevant MGC, or if an MGC’s revenue is lower than the established threshold.

Tax consolidation

Russian companies can elect to form a consolidated tax group, provided they satisfy certain thresholds (in terms of the group’s total tax liabilities, statutory accounting revenue and assets) and other criteria. In this case, a single tax base is calculated for the consolidated tax group, as opposed to the calculation of multiple tax bases for the individual members. This allows the losses of certain members to be offset against the profits of others.

In practice, the impact of this regime is limited for:

  • Russian companies in general, as the thresholds are currently so high as to allow only a handful of major corporate groups to be eligible; and
  • foreign investors, as:
    — foreign companies cannot become a member of a Russian consolidated tax group; and
    — group members are jointly liable for the group’s tax liabilities.

Currently setting up consolidated tax groups is under a moratorium which is in effect until the end of 2023.

Tax rate

The general profits tax rate is 20%, with 3% of the tax being payable to the federal budget, and the remaining 17% being payable to the appropriate regional budget of the region where the company is incorporated. Starting from 2024, 2% will be paid to the federal budget and 18% will be paid to the relevant regional budget.

In some cases, reduced tax rates apply. By way of example, a 0% profits tax rate applies to companies (domestic and foreign) transferring participatory interests or non-listed shares in Russian companies, provided the equity interest was held for at least five years. Similarly, organisations carrying out special types of socially useful activities like medical and educational services may benefit from a 0% tax rate in relation to their operational profit provided that certain requirements are met.

Taxation of dividends

Dividends received by Russian companies

Dividends received by a Russian company from another Russian company, or from a foreign company, are taxed at a flat rate of 13%. Dividends received from “strategic investments” are exempt from Russian corporate profits tax.

An investment is considered strategic when:

  • the recipient of the dividends owns at least 50% of the payer’s capital, or owns depository receipts entitling it to receive at least 50% of the amount paid in dividends; and
  • the share or depository receipts have been owned for at least 365 days on the day dividends are declared.

Since 2019, income gained by a Russian shareholder from a company’s liquidation or a shareholder’s exit, if such income exceeds the amount of the shareholder’s initial contribution, is treated in the same manner as dividends. So the exemption for “strategic investments” can apply to such types of income.

At the same time, since 2019, the following operations are exempt from taxation at shareholder level:

  • voluntary reduction of a company’s charter capital; or
  • repayment by the company of contributions made by shareholders to the company’s assets.

A revised concept of dividends came into force in 2020. It now includes income paid to a Russian shareholder from its foreign subsidiary, regardless of the qualification of such payment in the foreign state.

Dividends from companies residing in low-tax jurisdictions may not be exempt from Russian corporate profits tax. These jurisdictions are identified in an official list which is updated by the Russian Ministry of Finance.

Dividends paid by Russian companies

The standard 15% tax rate is applicable to dividends paid by Russian companies to foreign companies. The tax should be withheld by the Russian companies paying the dividends.

If there is an applicable DTT, then the standard tax rate may be reduced to a minimum rate of 5%.

Russian depositories acting as tax agents are required to apply the 30% withholding tax on dividends accruing on equity securities of Russian companies kept in the central securities depository (the National Settlement Depository) and paid to foreign companies that are deemed to be acting in the interest of non-disclosed third parties. A foreign legal entity is deemed to be acting in the interest of non-disclosed third parties if it does not provide information on the persons exercising the rights related to these securities.

Funds distributed by Russian companies to their foreign shareholders upon the company’s liquidation or a shareholder’s exit, if the amount distributed exceeds the amount initially contributed, should be qualified as dividends.

Similar to the tax regime applicable to Russian shareholders, income received by a foreign shareholder upon voluntary reduction of the charter capital of a Russian company or upon repayment by the company of contributions made by shareholders to the company’s assets is exempt from taxation in Russia.

Controlled foreign companies (“CFCs”)

Definition of CFCs

Under Russian Law, CFCs are defined as foreign companies and structures that meet the following participation criterion: any foreign company or unincorporated structure (such as trusts, funds, etc.) which has a 25% participation interest owned by Russian tax residents (although the participation threshold is limited to 10% if other Russian residents also participate in the foreign company (or structure), and the total participation of all these Russian residents exceeds 50%).

At the same time, the profits of certain categories of CFCs stipulated by the Tax Code are exempt from taxation in Russia. These include, for example, non-commercial organisations, active companies, residents of the Eurasian Economic Union, companies subject to high effective tax rates.

Requirements

The law provides for two key requirements that must be satisfied by Russian taxpayers who participate in CFCs and/or foreign companies: (i) notification requirements; and (ii) the obligation to pay taxes from the undistributed profits of the CFC.

In terms of the notification requirement, Russian taxpayers who are controlling parties must submit notifications setting out:

  • the details of the CFCs controlled by the taxpayer on an annual basis (not later than on 20 March of the year following the tax period in which the taxpayer accounts for the share of profit of the CFC (the latter occurs one year after the year in which the profits were received); so by 20 March 2020 in relation to a CFC’s profits received in 2018); and
  • the taxpayer’s participation interest in any foreign companies or structures other than CFCs, but only if such an interest exceeds 10% (not later than within one month from the date of exceeding the participation threshold).

Special tax regime for domiciled CFCs

Since 1 January 2019, Russian tax residents can choose to domicile their CFCs in the special administrative areas located on Russky and Oktyabrsky Islands (the so-called “Russian offshore zones”).

Residents of these areas that meet certain criteria and fall under the definition of an international holding company (“IHC”) can benefit from a preferential taxation regime. It includes the following tax exemptions on:

  • income of the domiciled company attributed to its controlled person;
  • subsidiaries’ income attributed to the IHC;
  • income received by the IHC from the disposal of equity investments in subsidiaries (under certain conditions); and
  • dividends received by the IHC from its subsidiaries (under certain conditions).

In addition, domiciled IHCs apply a 5% tax rate on dividends instead of the standard 15% rate.

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VAT

 
Taxpayers

VAT applies in particular to companies, including those importing goods into Russia.

If the taxpayer’s aggregated income for three consecutive months, excluding VAT, is below RUB 2m (EUR 28,600), the taxpayer may be exempt if it applies for the exemption.

Tax base

The following operations are subject to VAT (even if they are supplied free of charge):

  • sale of goods, works and services within Russia;
  • aircrafts services rendered in the Russian airports and airspace;
  • sale of e-services in Russia if effected by foreign companies with no presence in Russia (the so-called “Google tax”);
  • transfer of goods, works and services within Russia for the taxpayer’s own purposes, if the relevant expenses are not deducted for the purpose of corporate profits tax;
  • construction and building projects for the taxpayer’s own use; and
  • imports into Russia.

The taxable base is generally defined as the market value of the goods, works and services supplied, inclusive of excise duties but exclusive of VAT.

If the goods, works and services are supplied free of charge, an imputed price (set at the market value for identical goods, works or services, excluding VAT) is used.

Exempt supplies

Certain activities, including the following, are exempt from VAT:

  • the assignment of loan agreements;
  • operations with securities and derivative financial instruments;
  • certain banking transactions;
  • the issuance of guarantees by non-banking entities;
  • transactions with medical equipment and medical services;
  • certain research and development services;
  • the transfer of exclusive and non-exclusive rights to software, know-how, databases, inventions, and a range of other rights under a licence agreement (except trademarks); 
  • imports of technological equipment that does not have a Russian equivalent (as per a list approved by the Russian Government); and
  • operations related to import of civil aircrafts (starting from 1 January 2020).

Since 1 January 2018, the sale of waste ferrous and non-ferrous metals, as well as aluminium and scrap is no longer VAT exempt and has become a VAT taxable operation.

Tax rates

Since 1 January 2019, the standard VAT rate is 20%. A reduced rate of 10% applies to books, periodicals, medical goods, certain foods and children’s clothes. A 0% rate is applicable to the following operations:

  • export of goods from Russia (but, since 1 January 2018, Russian taxpayers may waive the right to apply the 0% VAT rate when exporting or re-exporting goods);
  • provision of time charter services related to import/export goods in Russia;
  • works and services related to the transportation of goods in transit; and
  • passenger air travel services, provided that both departure and destination (including intermediate points) of transportation are located outside of Moscow and Moscow Region; and
  • certain services and goods supplied to foreign diplomatic missions, etc.

Further, the Law on Tax Free2 came into force in Russia on 1 January 2018. According to this law, foreign citizens (with the exception of citizens of Eurasian Economic Union member states) can claim a refund of VAT paid on purchases made in Russia. This has recently been implemented in 16 Russian regions as a pilot scheme. Starting in 2020, the Leningrad Region, Primorsky and Khabarovsk Krais also joined the experiment.

The VAT refund is applicable provided that:

  • the foreign citizen purchased goods worth at least RUB 10,000 (EUR 143) in Russian shops within a day;
  • the goods purchased are on the relevant list which is to be approved by the Russian Ministry of Industry and Trade; and
  • the goods are transported outside the Eurasian Economic Union.
Input VAT

The VAT payable to the tax authorities is the difference between the VAT accountable for transactions subject to VAT (“output VAT”) and the VAT incurred on purchases subject to VAT (“input VAT”).

Input VAT is only recoverable in certain cases. Recovery no longer depends on whether it has been paid to the supplier. VAT on imports can be recovered only after payment is made to the customs authorities.

Input VAT related to expenses or assets used for the manufacture or sale of products exempt from VAT may not be offset. In the same way, input VAT related to expenses or assets used for “non-production activities” may not be offset.

Any VAT incurred on purchases and expenses which relate to activities, both subject to and not subject to VAT, must be apportioned. Only the part which is deemed to relate to activities subject to VAT may be offset as input VAT.

Any excess of input VAT over output VAT has to be refunded to the taxpayer. As a general rule, such a refund can only be made after the tax authorities have undertaken an audit. However, an accelerated VAT recovery procedure is also possible. Under this procedure, a taxpayer may recover VAT before the tax authorities complete the tax audit and have made a definitive decision on VAT recovery. According to these rules, companies which have existed for at least three years and paid taxes exceeding RUB 2bn (EUR 28.6m) over the last three years are eligible for the accelerated procedure, without having to provide a bank guarantee. Other companies can benefit from the accelerated procedure provided that they give a bank guarantee for the amount of VAT to be reimbursed.

VAT invoices serve as the basis for the offset of input VAT. They have to be issued in Russian and must contain the information specified in the Tax Code.

Reverse charge

If a foreign company which does not have a Russian tax registration supplies goods, works or services in Russia, VAT is collected through a withholding mechanism. The tax-registered buyer is required to withhold VAT from the amount payable to the foreign seller and to remit it to the Russian authorities. The tax-registered buyer may then offset the VAT which has been withheld and paid, as input VAT.

Commissioners and agents with a Russian tax registration are considered to be tax agents in relation to goods supplied on behalf of non-registered foreign companies.

Withholding mechanisms are no longer available for the supply of electronic services to Russian clients by foreign companies in respect of B2B and B2C operations. Since 1 January 2019, foreign providers of electronic services need to register with the Russian tax authorities, file VAT reports and pay VAT to the Russian budget.

Filing and payment

VAT is payable on the earlier of the following two dates:

  • the date of shipment or transfer of goods, works or services; or
  • the date of payment (in full or in part) for a future shipment or transfer of goods, works or services.

Advance payments are included in the VAT base at the time payment is received.

Taxpayers must file their VAT declarations on a quarterly basis. VAT returns must be filed within 25 days after the end of the tax period.

Taxpayers also have the option to pay VAT in three instalments, in the three months following the relevant quarter, except for specific cases, such as payment of VAT by a tax agent. All VAT taxpayers, irrespective of the number of staff, must file VAT tax returns electronically. This obligation also applies to branches and representative offices of foreign legal entities registered in Russia.

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Excise duties

Excise duties must be paid by the producers and/or importers of excisable products. Excisable products are, for example, oil products, alcohol, tobacco and cars.

Starting from 2020, the importation of tobacco products is subject to an increased excise coefficient.

Excise duties are generally levied on the value of the product.

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Corporate property tax

Property tax is payable in accordance with regional regulations and with the Tax Code.

Taxpayers

The following structures are taxpayers for the purpose of corporate property tax:

  • Russian companies having fixed assets on their balance sheets;
  • permanent establishments of foreign companies having fixed assets on their balance sheets; and
  • foreign companies owning immovable assets in Russia.

The above entities are required to pay property tax to the budget of the region where the relevant property is located.

Religious organisations and various types of public organisations are exempt from property tax.

Tax base

Property tax is assessed on fixed assets and “profitable investments in property” (as defined by Russian accounting standards). It may also encompass leased property in certain cases.

Intangible assets, movable property accounted for as fixed assets booked after 1 January 2013, inventories, work-in-progress and financial assets (among other categories) are not subject to property tax.

Since 1 January 2019, all types of movable property are exempt from taxation in Russia.

The Russian tax legislation does not currently provide unified criteria to classify assets as movable or immovable for tax purposes. This may give rise to disputes with the tax authorities, as confirmed by the existing court practice.

The tax base for most assets is the average annual residual value of taxable property for financial reporting purposes. The cadastral value is used to calculate the corporate property tax base for the following types of property:

  • business centres, shopping centres and premises in these buildings;
  • non-residential premises used as offices, shops or to provide catering services or services to consumers, or which are intended for such use;
  • any property owned by a foreign company operating without a permanent establishment in Russia; and
  • any property owned by a foreign company operating without a permanent establishment in Russia or with a permanent establishment in Russia if the property is not allocated to that permanent establishment; and
  • residential buildings and premises and some non-residential premises (such as garages, parking slots, construction in progress).

Regional laws establish the features of property tax calculation based on the cadastral value.

Tax rate

The rate is set at regional level.

When the average annual residual value is used to calculate the tax base, the rate may not exceed 2.2%. This maximum rate is currently imposed in most regions, including Moscow and Saint Petersburg.

The tax rate in respect of property for which the tax base is calculated based on the cadastral value may not exceed 2.2%. In Moscow, the tax rate is expected to be progressively increased from 1.7% in 2020 to 2% in 2023 and subsequent.

Payments

The tax period is a calendar year. Advance tax payments must be calculated and paid on a quarterly basis. Taxpayers must file quarterly tax returns within the 30-day period following the reporting period. Annual returns must be filed by 30 March following the reporting period.

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Payroll-related levies

 
Taxpayers

Several kinds of payroll-related taxes must be paid by employers. This applies to Russian employers as well as to foreign companies.

Insurance contributions

Insurance contributions are paid to three separate non-budgetary funds: the Pension Fund, the Federal Social Insurance Fund and the Federal Mandatory Medical Insurance Fund.

Since 2017, the administration and monitoring of social contributions for mandatory pension insurance, mandatory social insurance with regard to temporary disability and maternity, and mandatory medical insurance has been transferred to the tax authorities. In the 2020 calendar year, a regressive scale of insurance contributions is applicable: 22% is payable on the part of an employee’s annual gross remuneration below RUB 1,292,000 (EUR 18,460) for contributions to the Pension Fund and 10% is payable on the part of any remuneration in excess of this amount; 2.9% (1.8% for foreigners and stateless persons temporary staying in Russia) is payable on the part of an employee’s annual gross remuneration below RUB 912,000 (EUR 13,030) for contributions to the Federal Social Insurance Fund; and 5.1% is payable on the part of any remuneration for contributions to the Federal Mandatory Medical Insurance Fund.

However, payments and other compensation made to highly qualified foreign specialists (please see the Employment and migration chapter) are exempt from social contributions.

Other payroll contributions

Contributions to the Social Insurance Fund against industrial accidents and diseases are also payable. They vary from 0.2% to 8.5% of monthly salary and depend on the risk category of the employer.

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Taxes on natural resources

Taxpayers who use land, either on the basis of ownership rights or rights of permanent use, have to pay land tax to the local budget. The tax base used for calculation is the relevant land’s cadastral value (which, in practice, is significantly lower than its market value). The tax rate is set at a local level and may not exceed 1.5% of the cadastral value (0.3% in respect of certain types of land).

Water tax is imposed on taxpayers who use water to produce hydroelectricity. The tax rates vary depending on the specific water object.

Mineral resources extraction tax is imposed on subsoil users. It applies to various types of minerals, including oil and gas. It is based on the value of the extracted resources, and the rate varies according to the type of mineral.

Excess-profits tax on hydrocarbon production was introduced for oil and gas producers on 1 January 2019. This tax is aimed at shifting the tax burden to a later period in a field’s life cycle. It should be paid in conjunction with the mineral resources extraction tax (under substantially reduced rate) and is applicable not to the volume of the oil and gas extracted but to the income imputed from its sale reduced by the costs related to hydrocarbon production.

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Transport tax

This is a tax payable on registered transportation vehicles by the registered owners of these vehicles. The methods of declaration and payment are established by regional authorities.

The transport tax rates are generally fixed at federal level, but the regional authorities are entitled to increase/decrease these rates by a maximum of ten times. In addition, the regions have a right to set different transport tax rates depending on the categories of vehicles, their age and/or emission class.

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Sales duty

The provisions on sales duty apply in the territory of Moscow.

The taxpayers of sales duty are companies and individual entrepreneurs carrying out trade activities.

The sales duty base is defined as the value of movable or immovable property used for trade purposes. The amount of the sales duty paid is generally treated as an expense deductible for corporate profits tax purposes.

The sales duty rates are set by the regional authorities depending on the areas used for trade purposes.

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State duties

According to the Tax Code, a state duty is a fee charged on companies and individuals for certain services supplied by state bodies.

By way of example, the state duties for registering a Russian company currently amount to RUB 4,000 (EUR 57) and for accrediting a foreign company’s branch, RUB 120,000 (EUR 1,714).

The maximum state duties for the consideration of cases by the courts of general jurisdiction and by magistrates’ courts (“mirovye sudi”) are currently RUB 60,000 (EUR 858). The equivalent maximum state duties for the commercial courts now amount to RUB 200,000 (EUR 2,860).

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[1] At the notional exchange rate of RUB 70 = EUR 1, as used for convenience throughout this guide. Back ↑

[2] Federal Law No. 341-FZ dated 27 November 2017. Back ↑

Key contacts

Tissot Dominique
Dominique Tissot
Partner
Head of Tax | Head of Energy Efficiency & Renewables
Safaryan Hayk
Hayk Safaryan
Partner
Head of Customs