Doing business in the Russian Federation
Doing Business in the Russian Federation provides a quick overview of the legal framework, tax system, forms of business organization, and business and accounting practices in Russia. Making decisions about foreign operations is a complex task that requires knowledge of a country’s commercial climate, bearing in mind that the Russian business and regulatory environment continues to develop on multiple fronts. The guide reflects information current as of July 2014 (except where a later date is specified in the text).
At a glance
|Corporate profits tax rate||20% (a)|
|Capital gains tax||20% (b)|
|Branch remittance tax||0%|
|Interest on certain types of state and municipal securities, mortgage-backed bonds and certain income from certificates of participation in a mortgage pool||0%/9%/15%/30% (d)(g)|
|Other interest paid to foreign companies||20%/30% (g)|
|Income from the rental or sublease of ships and aircraft and/or means of transport and containers used in international traffic||10%|
|Rental income derived from property used in Russia||20%|
|Royalties from patents, know-how, etc. paid to foreign companies||20%|
|Income from the sale of Russian immovable property or shares (and derivatives thereof) of qualifying property-rich companies||20%|
|Fines, penalties||20%, 40% (e)|
|Payments of other similar Russian-source income to foreign companies||20% (f)|
(a) The basic corporate profits tax rate consists of 2% payable to the central government and 18% payable to the regional government. Regional governments have the power to reduce the regional element by up to 4.5% (establishing the regional rate as 13.5%), giving a minimum overall rate of 15.5%. Exceptions include certain educational and medical activities taxed at a 0% rate and profits subject to a special tax regime for new offshore hydrocarbon deposits, enacted with effect from1 January 2014, which are taxed at a fixed rate of 20% payable entirely to the federal budget.
(b) Capital gains of Russian companies are taxed at the corporate profits tax rate of 20% of the gain. However, in certain circumstances, the 20% rate applies to the gross income.
(c) Dividends paid to foreign companies (that do not have a permanent establishment in Russia) are subject to 15% profits tax withholding, but reduced rates may apply under applicable double tax treaties. Dividends received by Russian companies are taxed at 9% unless they qualify for the participation exemption regime. Under this regime, dividends received by Russian companies from qualifying participations in Russian and foreign companies are tax-exempt.
(d) Interest on certain types of state and municipal securities, mortgage-backed bonds, and certain income from certificates of participation in a mortgage pool are subject to tax at reduced rates.
(e) The standard penalty is 20% (which may be increased to 40% in the case of a deliberate violation). The transfer pricing legislation establishes a 40% penalty effective from 2017; a reduced 20% penalty applies to transactions concluded in 2014-2016.
(f) Items of “active” income such as income from sale of goods, other property (except for Russian immovable property or shares and derivatives thereof of qualifying property-rich companies) or property rights, conducting work or rendering services in Russia are generally exempt from income tax withholding in Russia.
(g) A “punitive” withholding tax rate of 30% could apply to interest, dividends paid on Russian securities (including ADRs and GDRs on the Russian securities) held through foreign nominee accounts at Russian custodians where no aggregated information on the beneficial owners of such securities is provided to the Russian custodians.
The withholding tax rates indicated above apply to payments to FLEs that do not carry out activities in Russia through a permanent establishment.
There are currently five flat rates of 9%, 13%, 15%, 30% and 35%, applicable to different types of income.
|Type of income||Flat tax rate|
|Dividend income (both Russian and non-Russian source) received by residents||9%|
|All types of income for which another rate is not specified, including salary and other income earned by tax-resident individuals; employment income* earned by any foreign individuals who qualify as “Highly Qualified Specialists (HQSs)” for immigration purposes, regardless of tax residency status||13%|
|Dividend income received by nonresidents||15%|
|All taxable income (except for dividends or employment income received by the individuals qualifying as Highly Qualified Specialists under immigration rules) received by individuals who are not tax residents in Russia||30%|
|Interest income on bank deposits in excess of the refinancing rate of the Central Bank plus 5% on ruble deposits (or exceeding 9% on non-ruble deposits), certain prizes and deemed income from certain loans extended at a rate of the lesser of two-thirds of the refinancing rate for ruble loans or 9% for loans denominated in foreign currency||35%|