The Russian taxation system is based on the Tax Code enabled in three stages. The Tax Code is a complex framework containing provisions about the federal, regional and local taxes applied to natural persons and legal entities. The corporate tax mainly relies on the high rates applied to Russian companies in the oil and natural gas sectors. These rates are not stated in the Tax Code, but they are decreed by the Russian government.
Both domestic and foreign companies are subject to the corporate tax in Russia. Foreign companies will pay the corporate tax only if they have permanent establishments or a management board and if they make any incomes from sources established in Russia.
Russian companies will be taxed on their worldwide earnings and, until 2012, each company in a group was taxed individually. The law now allows the creation of tax groups, meaning a conglomerate of companies with at least 90% ownership will be able to apply for a consolidated tax return. However, the consolidated return applies only if some conditions are fulfilled.
Foreign companies with permanent establishments in Russia, such as representative offices, branches, divisions or agencies, will pay the corporate tax on their incomes made in Russia.
From the 24% rate applied to corporations in Russia in 2008, the corporate tax has dropped down to 20% of which 2% goes to the government and the rest of 18% goes to the regional authorities. The regional authorities are entitled to reduce this rate by at most 4%. Capital gains in Russia are also applied a 20% tax rate. Branches of foreign companies are not taxed when remitting incomes to parent companies.
Companies in Russia will be levied other withholding taxes as part of the corporate tax. Dividends will be taxed with 9% for Russian companies and 15%, if the dividends are received by foreign companies, foreign companies that come from countries that have no tax treaty signed with Russia will be levied a 20% tax rate on interests and royalties.
Companies must also pay social contributions of 30% for incomes that go up to 567,000 rubles and 10% more if the income exceeds this sum. Contributions of 0.2% to 8.9% must also be paid for injury and professional illness contributions.
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