US - Russia Tax Treaty - Legal Advice for Investors
USA - Russia Double Tax TreatyUpdated on Friday 28th May 2021
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The US - Russia tax treaty was signed in June 1992 and successfully replaced the former tax agreement that the two countries signed in 1973. The new convention aims for the protection of the investment sectors of USA and Russia by providing several facilities and encouragements. Our Russian lawyers can help entrepreneurs start a business in Russia and can explain the applicable legislation referring to taxation. The registration formalities and other relevant aspects can be properly managed from a legal point of view by our experts.
What does the US Russia tax treaty comprise?
The economic relations between USA and Russia have been established for many years, and the double taxation treaty signed by these two countries is of high importance for the investment field. The following provisions are covered by this significant convention agreed by USA and Russia:
- Royalties and interests are exempt from taxation.
- A maximum of 10% tax rate is imposed on dividends. However, a reduced tax rate of 5% is applied to branch profits under certain conditions.
- The taxation of capital gains on assets except the real estate property is levied in the country of residence.
- The business profits of companies are taxed in the other state, whether USA or Russia, only to the amount accountable to a permanent establishment. Then, only on a net basis with deductions for business expenditures.
- In the USA, the tax convention applies to the federal income taxes, except the social security taxes, and personal holding company tax.
- In Russia, the treaty applies to taxes on profits of companies and also on incomes of individuals.
More about the provisions of the US - Russia tax treaty can be detailed by one of our attorneys in Russia. We have a dedicated team of lawyers in the tax field who can help international entrepreneurs understand better the tax requirements and legislation.
Terms defined by the double tax treaty signed by USA and Russia
According to the double taxation convention signed by USA and Russia, the term “permanent establishment” refers to the place of business, office, branch, workshop, factory and a mine for natural resources extraction.
The term “residence” refers to the domiciliation, place of incorporation of a company, whether in USA or Russia. As for the term “contracting state”, in this case, the convention refers to USA and Russia, the participants of the double taxation treaty.
Taxation of dividends, royalties, and interests according to the US Russia tax treaty
The US - Russia double taxation treaty stipulates that the dividends paid by a resident company with establishments in a contracting state to a resident of the other contracting state are levied in that other contracting country. The dividend tax is set at a 10% rate, but a 5% rate applies to company shareholders owning at least 10% of the voting stock, in the case of USA, or statutory capital in the case there is no voting stock in Russia.
There is no taxation on interests and royalties, according to the same double taxation treaty signed by USA and Russia, which is quite beneficial for international entrepreneurs who are directly involved in this treaty.
We remind you that our Russian lawyers can tell you more about the tax structure in Russia and how it is applied to your American companies in this country.
Investing in Russia
Russia is certainly one of the most popular business destinations for many foreign entrepreneurs. The possibility of setting up a company in most sectors of interest is a huge advantage for those who see the huge potential of the Russian market. In addition, the business climate in Russia offers many advantages to international players who want to develop their activities in this country and generate consistent profits. For example, the workforce is experienced and can be an asset for international companies that want to benefit from its qualities.
Establishing companies and registering firms is relatively easy, without too much effort in terms of relevant formalities and institutions. Russia offers an advantageous taxation system for both local and foreign investors. The government upholds equal rights in business, regardless of the origin of the entrepreneurs. Here are some statistics that underline Russia's economic direction:
- More than USD 463 billion represented the total FDI stock registered by Russia in 2019.
- The greenfield investment sector was quite prolific in 2019. Around USD 25 billion was the total value registered in the same year.
- The 2020 Doing Business report issued by the World Bank for the simplified business ranked Russia 28th out of 190 worldwide countries.
- The Netherlands, Cyprus, Luxembourg, Ireland, and UK are top investors in Russia.
We invite you to contact our law firm in Russia and find out more about the US - Russia tax treaty. Plus, if you want to start a business in Russia, you can be guided by our specialists.