Doing Business in Russia

Doing Business in Russia 31 Mandatory social insurance against occupational accidents and diseases Apart from the aforementioned personified contributions, employers are required to pay mandatory social insurance contributions against occupational accidents and diseases. These contributions are payable on the total payroll at a flat rate that varies depending on the risk category that the employing company belongs to, in accordance with the Russian Social Insurance Fund's assessment. The minimum rate is 0.2% of payroll; the maximum rate is 8.5%. Generally, office activity is subject to insurance contributions against injuries and professional illness at a rate of 0.2%. Filing and payment Insurance contributions are payable on a monthly basis. Generally, those making payments should file various reports with the Pension Fund and the Social Insurance Fund on a quarterly basis. Withholding income tax A FLE in receipt of income sourced in Russia which is not attributable to its Russian PE (e.g. rent, royalties, interest and dividends, freight income, etc.) is subject to withholding income tax at source. Income derived from the business activities of the FLE in Russia (e.g. nonrecurring consultancy services) which do not give rise to a PE are exempt from withholding income tax. There is no withholding tax on the repatriation of profits from a local Russian representative office or from the branch of a FLE to the head office. However, the proceeds from liquidation are subject to taxation at source. Tax rates Withholding income tax rates vary depending on the type of taxable income. Tax rates for dividend income are: 0% on dividends payable to a Russian legal entity (RLE) if this RLE has owned at least 50% of the shares in the dividend payer for 365 consecutive days, providing that the dividend payer is not resident in an off- shore country (e.g. the British Virgin Islands, Guernsey, Jersey, or any other state on a list compiled by the Ministry of Finance of the Russian Federation). 13% on dividends received by an RLE from an RLE or Foreign Legal Entity (except for FLES incorporated in the countries on the Ministry of Finance's list). 15% on dividends payable to a FLE by a RLE. Generally, Foreign Legal Entities having no Permanent Establishment in Russia are subject to 20% withholding income tax on most Russian-sourced income, such as interest, royalties, income from leasing and rental operations, etc. Freight income is taxed at 10%. Withholding income tax rates can be reduced in accordance with double tax treaties concluded between the Russian Federation and the actual country of the beneficiary's residence. For a list of double tax treaties and the withholding tax rates applicable under these treaties on dividends, interest, and royalties, see Appendix 1. Chart of Withholding tax rates, p.47. A FLE should confirm that it is resident in a country that is party to a double tax treaty with the Russian Federation in order to enjoy the reduced withholding income tax rates. Confirmation must be documented in a certificate issued by the relevant foreign authorities. A FLE should be ready to confirm that it is the actual beneficiary of the income received. In the absence of a proper certificate or confirmation of actual beneficiary status, tax should be withheld and remitted to the budget at the standard rate. Filing and payment Income tax should be withheld from the income payable to the FLE and remitted to the budget on the date when payment is made to the FLE. A Russian Legal Entity (or FLE with a PE in Russia) should also file a withholding income tax calculation. Rostov-on-Don ©2016 KPMG. All rights reserved.

View entire presentation