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Doing Business in Russia 2015 Doing business in Russia 2015 Tax & Legal This guide is designed as a basic reference guide to Russia’s tax and legal environment for businesses interested in doing business in Russia. Law and practice continue to evolve in Russia, and whilst all reasonable care has been taken to ensure that this guide provides a practical explanation of the current rules, readers are urged to obtain up to date formal advice before undertaking any action. Deloitte accepts no responsibility for any errors contained in this guide, whether caused by negligence of otherwise, or for any loss, however caused, sustained by any person who relies on it. 2 Doing business in Russia 2015 Contents 5 Introduction 8 Types of business presence 12 Accounting environment 17 Taxation of foreign presences 23 Russian-sourced income of foreign companies 27 Controlled foreign companies 32 Profit tax 39 Tax incentives 42 Property tax 44 Value added tax 54 Other taxes 56 Customs duties 58 Taxation of individuals 68 Employment 75 Currency control 78 Transfer pricing 81 Tax administration 90 Oil and gas taxation 100 Mining taxation 102 Appendix 1 — Withholding tax rates 106 Appendix 2 — Tax calendar for RLE for 2013 119 Appendix 3 — Tax calendar for FLE for 2013 131 Tax & Legal contacts — Russia and the CIS 133 Office locations Doing business in Russia 2015 3 Introduction In the last couple of years, the Russian legislature the Russian tax system closer to the best global tax has been prolific in developing changes to tax practices is the introduction of tax monitoring, which legislation. Many of these changes became effective should allow a transition to a “preventive” mechanism from 1 January 2015. One of the key developments of tax control. has focussed on the taxation of controlled foreign companies with the goal of creating an effective The law on tax manoeuvring in the oil industry was mechanism, which will prevent Russian business from introduced with an aim to decrease dependence misusing low tax jurisdictions and receiving unjustified on export duties by increasing the level of mineral tax benefits. Another innovation trying to bring extraction tax. Doing business in Russia 2015 5 Following the trend of overall increase in fiscal pressure, Strategic industries a new tax — a trade duty — has been introduced As expected, the law which limits foreign investment at a local level. The regional authorities now can choose in strategic industries has been relaxed, increasing to introduce a new duty a the local level; e.g. the federal the investment limit in companies with subsoil activity city of Moscow has already introduced it. from 10% to 25%, removing restrictions where the investor is an international financial institution (such Changes related to VAT have introduced a new format as the EBRD) and resolving a number of anomalies. for VAT returns starting from 1 January 2015 and a new A government commission charged with applying obligation to file of VAT returns electronically, which has the law has approved around 95% of applications. put additional administrative pressure on the taxpayer. Finance & investment A number of changes to profits tax regulations Since 2013, some major changes were made have been introduced which aim at harmonising to the banking system. The Russian Government the tax accounting rules with the statutory through the Central Bank has started a general reform accounting requirements. of the banking sector, corporate governance standards and corporate transparency continues to improve. This Guide covers the main features of, and latest changes, to Russian tax legislation. Legal framework The legal framework continues to develop We hope that you find it both educational and useful. with the growth of legal precedent and thus legal certainty, along with measures to fight corruption Taxation and update company law. In practice though, The main profit tax rate — 20% — is one of the lowest the objectivity of the authorities and impartiality among major economies. of the judiciary remains an open question. Tax and other incentives are becoming more common. Company law Many incentives are aimed at promoting innovation In 2014, some major changes were made to company and the modernisation of industries. law relating to corporate governance, classification of legal entities and other changes. 6 Doing business in Russia 2015 Expatriate staff Summary The introduction of a simplified process for obtaining Even during challenging political and economic work permits for ‘highly qualified specialists’ — conditions, Russia remains a country with an enormous with qualification based on remuneration, not potential for foreign investors. Virtually every skills — has been a great success. The authorities sector of the economy, whether state or privately preference for this route is clear. There is a requirement controlled, requires massive investment. Businesses for employers to make pension and social insurance in the technology and innovation sphere are particularly contributions for all those employees who do not secure welcome. a ‘highly qualified specialist’ visa. The following overview of taxes and related legislation is based on the law in effect as of 1 January 2015. Further information about doing business in Russia can be found at www.deloitte.com/ru/insights/dbir. Doing business in Russia 2015 7 Types of business presence Russian legislation provides for foreign companies having In accordance with recent changes to legislation, different types of business presence in Russia. These are: representative offices are now entitled to hire highly • Branches and Representative Offices qualified specialists. Previously, only a branch office was • Legal Entities entitled to do this. Please refer to the chapter entitled • Joint Activity Agreements, also known as Simple “Employment” for further details. Partnerships Because of the wide scope of their powers, branches This chapter includes a brief description of each of these are considered to engage in commercial activities forms. for taxation purposes and are thus subject to profits tax. The limited scope of activities that can be performed Branches and representative offices by representative offices would not normally expose According to the Russian Civil Code, both branches them to profits tax, but some offices do in fact engage and representative offices are referred to as subdivisions in commercial activities, including the negotiation of a foreign legal entity (FLE) that are located at a place and signing of contracts. In such cases, the office other than that of the legal entity’s head office. Branches would become liable to profit taxation in the same way and representative offices may be allocated property as a branch is. by the legal entity that has created them and act on the basis of regulations approved by that legal entity. Registration process It is a legal requirement for representative offices The difference between a branch and a representative and branches to be accredited by the appropriate office lies in the nature of the activities they are entitled government organisation. This organisation is generally to perform. A representative office can only represent the Federal Tax Service, but it can differ depending the interests of the legal entity and this normally limits on the nature of the head office activities. For example, its activities to those of a non-commercial nature, such accreditation of representative offices of foreign banks as marketing or the gathering of information. A branch, is carried out by the Bank of Russia. Regardless of in contrast, can perform all or part of the legal entity's the state body involved, branches and representative functions, including (but not limited to) representation. offices must also be added to the State Register Nevertheless, some representative offices are known of Accredited Foreign Representative Offices held to engage in commercial activities and have never been by the Federal Tax Service. challenged by the authorities, provided they have duly completed their accounting in relation to Russian tax. 8 Doing business in Russia 2015 The registration process for both branches Neither the shareholders of JSCs nor the participants and representative offices thus involves in LLCs are liable for the obligations of the company, the following stages: and they bear the risk of losses only to the extent • Accreditation and incorporation into the State Register of the value of their contributions (i.e. a limited liability). of Accredited Foreign Representative Offices/Branches • Stamp creation However, there are situations in which a parent company • Registration with the tax authorities (regardless may be held liable for the obligations of its subsidiary: of whether the activities are taxable or not) a parent company which has the right to give • Registration with the State Statistics Committee directions that are binding on its subsidiary is jointly and registration with social funds liable with the subsidiary for transactions concluded by the latter when following such directions. This liability The entire process typically takes from four to six exists regardless of whether the form of the commercial weeks from the date that the documents are submitted legal entity is an LLC or a JSC. A similar concept applies to the state authorities. in the event of the insolvency of a subsidiary, whether it is an LLC or a JSC. If the parent company determined Legal entities the subsidiary's actions in the knowledge that this On 1 September, 2014 significant amendments would result in its subsequent insolvency, the parent to the regulation of business entities in the Russian company bears the liability for the subsidiary's debts Federation came into effect. In accordance if the subsidiary's property is insufficient to cover with the amendments all legal entities are now divided its liabilities. into corporate (corporations) and unitary entities, depending on whether or not the founders have A Russian company cannot be owned 100% by another the right to participate in legal entities and are able corporate entity (wherever it is incorporated) where to form an executive body.
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