Personal income tax for foreign employees in Russia
When foreign nationals start working in Russia, they are often baffled by the calculation of income tax because it is dependent on criteria such as the type of work permit (work permit for highly qualified specialists or regular work permit), tax status in Russia and tax status in foreign nationals’ country of origin. We have outlined below the particularities of personal income tax for foreign employees in Russia.Read more
Changes in the rules for registration of foreign nationals
Brief description of changes and recommendations
Essentially, the following changes have been introduced:
- Previously, companies could register their foreign employees at their own registered address. From July 08, 2018 onwards foreign employees will need to be registered at their address of residence.
- Since many landlords will be unwilling to register their foreign tenants, we recommend issuing a power of attorney for the person who will register foreign employees on behalf of their landlord.
Proof of income ownership
To apply Double Taxation Treaties, Russian companies have been required since 2017 to obtain from foreign recipients of income proof that such recipients have actual right to income. This requirement is relevant to all companies engaging in cross-border transactions. We will find below a more detailed review of this topic.
How do Double Taxation Treaties work in Russia?
What international treaties are being discussed?
If income is received by a resident of one country from another country, such income could be taxed twice: in the country where income is received and in the country where income is paid.
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Agent VAT upon payments to foreign companies in Russia
Foreign companies often enter into contracts with their subsidiaries in Russia for provision of services such as, for example, management services, consulting services, information support, royalties, etc. In some cases, the Russian subsidiaries will be required to withhold agent VAT upon payment of fees for services rendered to their parent company.
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Payroll audit in Russia
It is important to understand that, when audits are conducted, they cover different aspects of an organization. In this article, we will consider the specifics of payroll audit.
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How long should legal documentation for tax purposes be stored?
Storage period for accounting documents
Documents required for accrual and payment of taxes, including documents confirming receipt of income, payment of expenses and taxes, should be kept for at least 4 years.
When companies record losses at year-end, they are entitled to carry over losses to reduce their future tax payments by paying taxes on the difference between a year's profit and a year’s loss. The documents received in “unprofitable” years must be kept for 4 years after all losses have been used up for tax reduction purposes. For example, a company, which has been operating since 2015, records profits for the first time only in 2017. This company could reduce the amount of tax it needs to pay by deducting its losses of 2015 and 2016. In such case, it would be necessary to keep the documents for these years for a period of 4 years starting from 2017.
Primary accounting documents, ledgers, financial statements and audit reports must be kept for at least 5 years.
The following fines are imposed in case of violation of document storage periods (Article 120 Russian Tax Code):
- RUB 10,000 when there are no accounting and tax accounting documents for one tax period;
- RUB 30,000 when there are accounting and tax accounting documents for several tax periods;
- At least RUB 40,000 or 20% of the unpaid tax amount when the absence of documents results in an understatement of the tax base.
Storage period for HR documentation
HR documents must be kept for 50 years if issued after 2003 and at least 75 years for documents issued before or in 2003. Companies that closed down must transfer their documents to state archives.
There are also industry standards for archiving various types of documents which have been adopted by the relevant authorities and agencies.
How to manage exchange rate differences and read P&L amid fluctuations in ruble exchange rate?
What effects do exchange rate differences have on profit and loss statements?
Financial statements are currently prepared without taking into consideration the most dangerous risks associated with exchange rate differences, and this can result in inaccurate representations of the financial condition of companies. Read more
Audit in Russia: FAQ
Which companies are subject to mandatory audits?
- All joint-stock companies (AO);
- Corporations with trading stock;
- Financial institutions;
- Business entities, including limited liability companies, with total sales of preceding year exceeding 400 million rubles or total assets exceeding 60 million rubles at the beginning of the reporting year;
- Entities issuing consolidated financial statements are also subject to mandatory audits.
Voluntary audits versus mandatory audits
Companies not subject to mandatory audits may, of course, request that their financial statements be voluntarily audited.
Is there any difference between voluntary and mandatory audits?
There is no difference, and both voluntary and mandatory audits must be conducted in compliance with audit regulations.
So if you need an independent auditor’s report for a bank or investor, we recommend conducting a voluntary audit.
If you would like to make sure that you do not need to conduct an audit, you could request a tax compliance examination.
Do audits verify tax compliance?
Although this is not the main focus of an audit, auditors generally verify tax compliance when they review financial statements which are what matter most!
When should statutory audits be conducted?
Audit reports are to be submitted to Russian statistical authorities together with financial reporting within 10 days of the date of audit report and no later than December 31st of the year following the reporting year. This means that for the financial year 2016, Russian statutory audit should be completed by December 31, 2017 at the latest.
How can Konsu help?
We are pleased to offer you our auditing services which provide the following benefits.
Konsu is an officially licensed auditor providing high quality audit reporting in accordance with Russian and international audit standards.
We offer phased audits conducted at specified intervals throughout the year, so that your company can rectify identified errors within the current reporting period and present better results upon final audit.
In addition to following formal, compulsory auditing procedures, our auditors and experts also provide the shareholders and management of an audited company with valid information about internal control issues, risk management, and efficiency of business processes.
If you have any other questions regarding audit in Russia please contact us.
New OECD Automatic Exchange of Tax Information
New Law to Simplify the Exchange of International Tax Information
The Russian Ministry of Finance has drafted a bill intended to build a legal base for international automatic exchange of tax information and information on financial statements. Tax authorities will oversee this new system.