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Business Taxation for Expats in Russia

Submitted: January 2014

The authority responsible for Russian Tax is the Federal Tax Service of the Russian Federation (FTS). Their website is here.

Registration

The most common form of business structure in Russia is the limited liability company (LLC). An LLC can be incorporated by one person, but may not have more than 50 members. Member’s liability is limited to the contributions made to the company.

Registration is done by the local branch of the FTS and requires the following documents to be submitted:

  • an application for registration
  • a decision on establishment of the new legal entity
  • the articles of association
  • a confirmation of state duty payment, and
  • a document confirming the legal status of a foreign entity (if applicable).

Generally the process of registration takes approximately one week from the submission of the documents. The LLC will be provided with a personal identification number (INN) and tax registration code (KPP).

Another possible choice is a sole proprietorship, however with these your liability extends to your own personal assets, and the business income is subject to personal income tax.

Corporate Income Tax

The Russian tax year runs from 1 January to 31 December. A company’s tax year and accounting year must also run from 1 January to 31 December. Russian resident companies are liable for corporate income tax on their worldwide income and capital gains. Non-resident companies are generally liable for corporate income tax on their Russian source income; and for capital gains tax on income from the sale of taxable Russian property.

The headline corporate income tax rate is 20%. This is composed of 18% which is allocated to regional governments, and 2% for the federal government.

Certain regions operate incentives for investment in priority sectors in the form of lower regional taxes which can reduce the overall tax rate to as low as 15.5%

Dividends received by resident companies are tax at a rate of 9%. However if they are received from companies that are 50% owned, they are exempt from tax.

Companies are responsible for paying social insurance contributions on behalf of employees based on the salary of each employee. The rate is 30% for the first RUB624,000, and 10% on anything over that figure.

There is a simplified tax system (STS) available for certain small companies with income of less than RUB15m in the first nine months of the year in which the application is made. There are several other conditions. An STS company can calculate their tax liability in several different ways, for example, as 6% of revenue or as 15% of revenue after deduction of certain expenses. They must pay advance tax on a quarterly basis. STS companies are exempt from corporate income tax, business property tax, social contributions and VAT.

Companies must file periodic tax returns either monthly or quarterly, depending on their chosen reporting period, no later than 28 days after the end of the relevant period. Advance payments of tax must be sent at the same time as the returns. They must also file their annual tax returns no later than 28 March after of the following year. Returns may generally be filed electronically. Penalties apply for late filing.

 

 

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