Foreign investors acting on the basis of agreements
Consulting foreign companies acting in Russia on the basis of agreements (without registration of a legal entity, representative office or branch)
Corporate Practice Law Firm helps foreign companies concluding the contracts with Russian companies without setting the legal entity, establishing branch or representative office.
Upon your request we will review the nature and substance of the activity of your company in Russia and provide you with legal opinion regarding possibility of taxation of your company in Russia and possible ways to legally not pay taxes in Russia.
Foreign companies should take into consideration that according to the Russian law there are basis for taxation of the foreign companies in Russia even if they do not have formally registered representative office, branch or Russian legal entity.
Taxation of foreign companies in Russia
The tax status of foreign companies in Russia is determined by the Russian Tax Code.
According to the Code, there are two different ways for a foreign company to derive income from the territory of Russia:
A permanent establishment of a foreign company in Russia is understood as any fixed place of doing business. A permanent establishment is broadly defined as "a branch, division, office, bureau, agency, or any other place through which a foreign legal entity regularly carries out its business activities in Russia".
Importantly, there is no difference whether a foreign company's office is registered in Russia to be considered as a permanent establishment under Russian law. A permanent establishment may exist even if the office is not registered, and the existence of a registered office may not necessarily give rise to a taxable permanent establishment.
Conducting business through an agent may also create a taxable permanent establishment in Russia. It's related to a "dependent agent", i.e. a person appointed for carrying on business in Russia on behalf of the company. An independent agent (e.g. a broker) is not deemed to create a permanent establishment.
Profit derived by foreign legal entities from their having a permanent establishment in Russia is generally taxed at the same profits tax rates applicable to Russian taxpayers (currently 20%). Generally, the principles of taxation applicable to a permanent establishment of a foreign company in Russia are basically the same as the ones applicable to a regular Russian company, mutatis mutandis. They are both subject to the profit tax, the VAT, the property tax, payroll taxes, regional taxes, etc. They are also both subject to Russian accounting and reporting rules, with some exclusion.
Foreign legal entities operating in Russia through a permanent establishment follow the filing and payment schedules established for Russian legal entities, although they do not make monthly advance payments and pay profits tax on a quarterly and annual basis only.
Income derived by a foreign company without a permanent establishment is normally one of a passive character, i.e. dividends, interests, royalty, etc. of foreign company are usually subject to withholding tax.
Russia is now a party to 68 double taxation treaties, which can provide for the reduction of the withholding tax rate on dividend income to as low as 5% and generally provide for a 0% withholding rate on other income. Also, Russia's double taxation treaties may define a permanent establishment differently, which could result in tax relief in some cases.
As we see, both a representative office and a branch generally constitute a permanent establishment of the foreign company for tax purposes. However, there may be situations in which the actual operations of the division do not result in deemed creation of a permanent establishment in the tax sense (e.g. short-term construction in accordance with the terms of the tax treaty between the two countries). But anyway the office should be accredited and registered in the first place for commencing any operation.
A foreign company may be subjected to simplified taxation system. With the options to use the 6% tax on total earnings or 15% tax on profit and not to pay VAT the simplified taxation system is much more profitable for taxpayers than the general taxation system. However, there are serious restrictions to use the simplified system which are provided for by the Tax Code of the Russian Federation.
Corporate Practice Law Firm will help you:
To obtain the information on our services and request our legal assistance, please contact us:
via phone: +7 (495) 796-2468
via e-mail: email@example.com