Representative offices, branch offices, construction sites and other types of structures involved in business activities in Russia are considered separate divisions and carry the name of foreign legal entities (FLE).
Foreign legal entities conducting economic activities in Russia for more than 30 days are required to register with the local tax authorities. Russian foreign legal entities must register separately each division of their business. Real estate and construction businesses have to register separately. Foreign legal entities are subject to the same taxation system as Russian companies with minor differences. These differences, however, make Russia a very attractive destination for foreign investors.
Foreign companies in Russia are subject to the taxation of profits only if they have registered offices in the country, otherwise they will not be taxed on the profits they make. Withholding taxes are applied to foreign companies making profits in Russia, if the profits come from other sources than the permanent establishment.
Withholding taxes are applied to dividends, royalties, incomes derived from the distribution of profit from property or distribution of capital after company liquidation. Interests are also subject to Russian withholding taxes, if they come from debts, profit-sharing debts or bonds. Companies involved in real estate transactions, such as sale or lease of immovable properties in Russia, have to pay withholding taxes. The income made from freight activities is also subject to taxation in Russia.
According to the Russian Tax Code, a foreign legal entity is subject to the property tax if the following conditions are met:
The taxation of immovable property is different for foreign companies compared to Russian companies. The tax applied to immovable properties of foreign companies, that do not have registered offices in Russia, is levied on the inventory value of the property, while Russian companies are levied the average annual value of the property.
The maximum tax rate for profits is 20% in Russia and 2% goes to the federal budget and 18% goes to the regional budget. Regional authorities provide tax incentives that are usually employed as reductions applied to the profit tax. These reductions can reach 4.5% of the tax rate. Interests are subject to a 20% tax rate, while for foreign legal entities is applied a 15% tax rate on the dividends sent to the parent company, but if double tax treaties are enforced, tax deductions apply.
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