Taxation of Foreign Companies in Russia

Entrepreneurial activity in Russia is conducted not only by Russian companies, but also by foreign organizations. However, despite the origin of the company, taxation issues remain relevant for both Russian organizations and foreign companies. Features of tax calculation by foreign organizations operating in the territory of the Russian Federation are reflected in articles 306-309 of the Tax Code of the Russian Federation.

The specifics of taxation of foreign companies depends on the presence of a permanent establishment or its absence. It is important to note that in accordance with the federal law “On Foreign Investments in the Russian Federation”, the creation of a branch or representative office of a foreign legal entity is carried out through its accreditation in the manner determined by the Government of the Russian Federation.

A permanent establishment of a foreign organization in the Russian Federation is a branch, representative office, branch, bureau, office, agency, any other separate subdivision or other place of activity of this organization through which the organization regularly carries out business activities in the territory of the Russian Federation. In this case, the object of taxation are:

1. income received by a foreign organization as a result of carrying out activities on the territory of the Russian Federation through its permanent representative office, reduced by the amount of expenses incurred by this permanent representative office;
2. income of a foreign organization from the possession, use and (or) disposal of the property of a permanent representative office of this organization in the Russian Federation, net of expenses associated with obtaining such income;
3. other income from sources in the Russian Federation relating to a permanent establishment.

In the absence of a permanent establishment, income in this case includes:

1. dividends paid to a foreign organization;
2. income received as a result of distribution in favor of foreign organizations of profits or property of organizations;
3. interest income from debt obligations of any kind, including bonds with the right to participate in profits and convertible bonds;
4. income from the use of intellectual property rights in the Russian Federation;
5. income from the sale of shares (stakes) of organizations, more than 50 percent of whose assets directly or indirectly consist of real estate located on the territory of the Russian Federation;
6. income from the sale of real estate located on the territory of the Russian Federation.
7. income from leasing or subleasing property used in the territory of the Russian Federation;
8. income from international transportation;
9. fines and penalties for violation of contractual obligations by Russian persons, state bodies and (or) executive bodies of local self-government;
10. other similar income.

To conduct business in the Russian Federation, foreign companies need to understand tax issues, this is due to the fact that violation of tax laws leads to adverse consequences for organizations in the form of penalties from regulatory authorities. And given the volatility of the business market, depending on the situation in the country and in the world as a whole, additional costs in the form of penalties can not only hinder the development of the company, but also block its activities.

At the same time, the instability of political and economic processes is forcing foreign companies to decide on the liquidation of representative offices, or their sale, possibly temporarily, to Russian entrepreneurs. In this case, it is important to take into account how the transaction for the sale of a foreign company (representative office) will be formalized, which will depend, among other things, on the conditions and system of taxation of such an organization.

At the same time, the frequency of changes in tax legislation also depends on the political and economic situation, in some cases, especially for foreign companies. To exclude violations in the field of taxation, it is important for foreign companies not only to comply with the law in this industry, but also to carefully monitor it.

Doing business on the territory of the Russian Federation obliges a foreign company not only to tax its business activities, but also, importantly, to comply with tax laws in relation to employees employed in such an organization.

For competent integration into the Russian market, foreign companies involve qualified specialists in accounting and tax reporting, who not only have theoretical knowledge of Russian legislation, but also have practical experience in supporting foreign companies. At the same time, it should be noted that the issues of taxation of a foreign company are not the only ones for which it is necessary to involve qualified lawyers.

It is important to understand that for proper taxation it is necessary to maintain all financial documentation in compliance with the requirements of not only Russian legislation, but also international and customs law, including number. This is due to the fact that the entire structure of taxation of a foreign company, including the tax base, depends on the correct execution of all financial documents. At the same time, financial documents include not only accounting, but also the preparation and conclusion of agreements and contracts. In fact, taxation issues depend on the full and competent documentation of the company as a whole.

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1. Advice on taxation of foreign companies
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3. Representation of foreign companies in tax authorities
4. Preparation of documents in the field of taxation of foreign companies