Vat for eservices provided foreign companies en konsu outsourcin

VAT for e-services provided by foreign companies

Google tax will apply from January 01, 2019 onwards to all e-services purchased from foreign companies. Foreign organizations will be required to register with Russian tax authorities and themselves calculate and pay Russian VAT regardless of whether their counterparty is an individual, legal entity or individual entrepreneur.Read more

Repatriating profits from Russia

What is the most common way of repatriating profits from Russia?

If you own stock in Russian entities, either as a stockholder in a Russian corporation or a member of a Russian limited liability company, profits earned in Russia may be paid to investors as dividends.

Stockholders may declare profit distribution on a quarterly basis, every 6 months or annually.

Are there any restrictions on dividend payments?

Yes. The law strictly restricts the distribution of dividends. For example, profits cannot be distributed to investors when:

  • a stockholder has failed to make a full contribution to capital;
  • the company is insolvent or will be insolvent as a result of profit distribution;
  • the company’s net asset value is negative or will be negative as a result of profit distribution.

We have declared dividends. Do we have to pay income tax?

Yes. Dividends are generally recognized as taxable income.

Please note that foreign investors may be subject to double tax treaties entered into between Russia and their state of residence. Many tax treaties allow foreign investors to pay income tax on dividends in the state of their residence.

Please bear in mind that tax treaties may provide for additional specific requirements, such as minimum capital contribution, maximum tax rates for dividends and so on. We therefore strongly recommend getting the opinion of a tax adviser when you apply double tax treaty provisions to dividend income.

If foreign investors – either non-residents or foreign business entities - decide to pay tax on dividends in Russia, they should pay 15 % income tax on distributed profit.

Some countries have pass-through business structures. Is there anything similar in Russia?

A pass-through entity is a special business structure set up to avoid double taxation. Such entities do not pay corporate income tax. Corporate income is distributed to the owners who pay income tax.

Russian corporations and limited liability companies cannot avoid double taxation. This means that entities pay income tax on profit earned, and then stockholders also pay tax on dividend income.

Double taxation is perhaps the only downside of profit distribution through dividends.

We would like to avoid double taxation. Is there any alternative to dividends?

Some companies disguise distributed profits as interest or service fees.

For example, a parent company lends money to its Russian subsidiary and receives interest or provides management services to its Russian subsidiary and receives fees.

The Russian company will then deduct interest and fees as business expenses which, in turn, will result in a smaller taxable income so that the funds actually distributed are not taxed at corporate level.

Interest income and fees received by stockholders will then be subject to income tax, but only once when received by stockholders.

Please bear in mind that such methods are restricted and may sometimes be treated as unlawful transactions.

12.08.2020 Federal Tax Service explanations of control over expenses for intragroup services

What are the restrictions on interest?

Russian thin capitalization rules limit the deductions for interest payments by imposing a debt to equity ratio of 3:1.

If interest on any debt exceeds the threefold ratio to equity, it will not be deductible for tax purposes.

Our services

Our tax experts can advise on and devise the most suitable and legally safe scheme for profit repatriation from Russia. We would be pleased to assist you, drawing from our 25 years of tax planning experience and advising foreign companies of all sizes, including Fortune 500 companies, in Russia, so please, feel free to contact us.

Vat increase 20 what needs done en konsu outsourcing consulting

VAT increase up to 20%. What needs to be done?

The VAT rate will increase from 18% to 20% from January 01, 2019. Transactions (sale of services, goods or work performance) which used to be taxed at 18% will be taxed at 20% from January 01, 2019.Read more

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.

Read more

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.

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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.
Read more

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.
Read more

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.
Read more

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.