Taxes in Russia
Taxation in RussiaUpdated on Friday 20th March 2020
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The Russian taxation system falls under the Tax Code. The income tax may be regarded as a federal tax that can also be regulated by the regional legal frameworks. Corporate taxes can also be divided at federal or local level.
Below, we have prepared a small guide on taxes in Russia. With the help of our Russian lawyers, the tax legislation here is easier to understand. At the same time, you can rely on us for assistance in starting a business in Russia. You can also rely on us for assistance in tax and VAT registration in Russia.
What are the main taxes in Russia?
The Russian taxation system is made of direct and indirect taxes and they are administered by the Federal Tax Service.
Here are the main taxes in Russia which need to be considered:
- the personal income tax which is levied on the worldwide income of Russian citizens;
- the corporate or the profit tax which is imposed on companies with taxable activities in Russia;
- the value added tax (VAT) which is the most important indirect tax levied in Russia;
- the excise taxes which are paid by individuals and companies trading goods outside Russian borders;
- the mineral extraction and water resources taxes which are levied at a federal level;
- the corporate property, the transport and the gambling taxes which are imposed at regional levels;
- the land and the personal property tax which are imposed at a municipal level.
Our lawyers in Russia can offer more information the taxes in Russia applicable at federal, regional and municipal levels. We can also assist with EORI registration in Russia.
Tax residency in Russia
In order to be taxed in Russia, an individual or a business entity must be considered a tax resident here. Tax residency will help the authorities determine whether an individual or company will be taxed on the worldwide income or only on the income obtained in Russia.
For an individual to be considered a tax resident in Russia, he or she must spend at least 183 days out of a calendar year in Russia. However, the tax residency status can change based on the provisions of a double taxation agreement signed by Russia and the country from where a foreign citizen relocates, even if temporarily. Under such an agreement, the tax residency is determined on nationality, on the country in which the taxpayer has a permanent home and on the economic and personal relations.
In the case of companies, tax residency is easier to establish, as a company with a management place or headquarters in Russia is considered a resident here for taxation purposes. Foreign companies can operate in Russia through branches and subsidiaries.
Under Russian double tax treaties, foreign companies can also operate through permanent establishments and benefit from various tax advantages.
Our Russian lawyers can offer more information on the taxation of non-resident companies and other taxes in Russia.
What are the main tax rates applicable in Russia?
Taxes in Russia are imposed on various criteria, however, all taxes are levied at specific rates, as follows:
- the standard rate for the personal income tax is set at 13%, however, reduced rates can apply;
- the corporate or profits tax rate is currently set at 20%, however, a 0% rate is available for entities completing various activities;
- the value added tax is levied at a standard rate of 18%, but reduced rates of 10% and 0% also apply;
- the land tax is applied at a 0.3% rate for the use of land for agricultural purposes, residential and utilities purposes and 1,5% for other purposes;
- the individual property tax ranges between 0,1% and 2% depending on the value of the property.
It is important to note that the Russian Tax Code can be modified, and certain taxes and rates can change, which is why it is best to verify the respective rates from time to time. Our lawyers in Russia can offer updated information on the taxes to be paid here.
The personal income tax in Russia
All individuals residing in Russia permanently or temporarily are subject to the personal income tax which is levied at a federal level. The personal income tax is calculated as a percentage applied to the tax base and it is imposed at specific rates (standard or reduced) based on specific criteria.
The personal income tax is calculated on all the income generated by a Russian citizen or resident which can come from employment, but also other sources, such as property ownership, rental activities, capital gains and so on.
An important aspect which needs to be respected when it comes to the taxation of persons in Russia is that residents are taxed at a lower rate of 9% for incomes generated from share participations and dividend payments.
In the case of non-resident citizens, the standard tax rate is 30%, while dividend income and share participations are taxes at a rate of 15%. Under Russian double tax treaties, these rates can be lower.
The Russian corporate tax
The Russian corporate tax is 20% and it is split in two: 2% goes to the government and the rest of 18% - to the regional administration. However, the regional administration is allowed to reduce the rate with 4%. Capital gains are taxed at the full rate of 20%.
There are also withholding taxes for:
- dividends that are taxed at 9% for residents and 15% for foreign companies;
- interests that are taxed with 0% for inland payments and 20% for countries that do not have double taxation treaties with Russia;
- freight expenses are taxed 10% for payers with no establishment in Russia;
- royalties are taxed with 20% for countries that do not have double taxation treaties with Russia;
- foreign companies must pay 20% of their earnings made from other sources in Russia.
The profit tax is applied to Russian companies as well as to foreign companies conducting their business in Russia or that make income on Russian territory.
Our lawyers in Russia can offer full information on the Russian Tax Law.
Social security contributions in Russia
Social security contributions are paid to the federal budget, the Social Insurance Fund and Medical Insurance Fund. The rates for these contributions are 30% for an income until 67,000 RUB per year and 10% for incomes exceeding 67,000 RUB and they are paid by the employers. Employers must also pay between 0.2% and 8.5% for injuries and professional illness.
The income tax is applied to employees and self-employed persons and it is set at 13%. For non-residents, the income tax is set at 30%.
The value added tax in Russia
The value added tax (VAT) in Russia is set at 18% for imported goods or services. A reduced VAT rate of 10% is applied to foods, medical products and printed materials.
Financial services, education, cultural services and some medical services are exempt from paying VAT.
Financial services, education, cultural services and some medical services are exempt from paying VAT.
The asset tax in Russia is applied to properties that belong to Russian companies and offices of foreign companies. The rate is set at 2.2 % and the tax is collected by the regional administration. The advertising tax is applied to advertising costs, it excludes VAT and it is set at 5%. The advertising tax is levied by the local authorities.
We can also help companies obtain EORI numbers for trading activities in EU countries. We can also help in VAT registration in Russia.
Filing tax returns in Russia
The tax year ends on the 31st of December for individuals who must file their tax returns for the precedent year by the 30th of April. Foreign citizens working in Russia for a limited period of time may file their tax returns earlier and must also submit a declaration for the income they earned. Foreign citizens must file their returns no later than one month after leaving Russia.
In the case of companies and sole traders, the financial year ends on the 31st of December just as in the case of individuals, however companies must file their tax returns by the end of March of the following years, while sole proprietors are required to pay their taxes in advance, as it follows:
- the first payment must be made by the 15th of July;
- the second payment must be made by the 15th of August;
- the last payment must be made by the 15th of November of the same tax year.
Limited companies must file their returns by the end of March of the following year, however they must also pay in advance their taxes which will be assessed based on the income earned in the previous quarter. Russian companies also have to option to file their tax returns electronically. The representatives of the companies must also file a declaration on the correctness of the information submitted with the local tax offices.
Foreign companies doing business in Russia can also invoke the double tax treaties their home countries signed with Russia in order to deduct some of the taxes paid in Russia.
Tax minimization strategies in Russia
Charitable donations are a popular tax minimization strategy. Taxpayers can donate certain amounts and deductions can be made from these donations. Donations are most easily made in cash, but they can take the form of tangible and intangible assets. Deductions may be available for interest paid on investment loans, especially when paying the interest in advance.
Bringing forward the tax deductions into the current financial year can also be a way to maximize tax deductions. This means that investors in Russia can make certain purchases or investments in advance. Some examples include:
- anticipated gifts for employees or business partners,
- repairs for properties in Russia,
- paying subscriptions for memberships in advance.
When investing in Russia, it is advisable to seek the help of a professional tax planer. Our Russian law firm can provide various services and offer you complete information about taxes in Russia. Companies that operate in Russia should also know that the country has signed approximately 80 double taxation avoidance treaties with other countries.
Why is tax minimization important?
Tax minimization is much more than trying to reduce the amount of money that must be paid when the annual income tax calculations are due. It involves long-term financial planning, dedication and a thorough understanding of different tax planning and tax management processes.
By incorporating tax minimization strategies into your company management scheme, you can ensure that your company in Russia won’t miss significant opportunities.
The taxation of foreign legal entities in Russia
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. These companies must also register for VAT in Russia under specific circumstances.
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.
Property tax applied to foreign companies in Russia
According to the Russian Tax Code, a foreign legal entity is subject to the property tax if the following conditions are met:
- if the foreign company has a permanent establishment in Russia, the property tax will be levied on both movable and immovable properties of the establishment,
- foreign companies carrying business activities without the necessity of having a registered office will only pay the tax on immovable property.
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.
We can assist in applying for EORI numbers in Russia.
Tax rates applied to foreign companies in Russia
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.
If you want to start a business and you need assistance, our law firm in Russia can provide you the legal expertise you require. so do not hesitate to contact us.