Doing Business in Russia
Doing Business in Russia 29
Profits tax
Tax base
Taxable profit is calculated as income
minus the expenses recorded in the tax
accounts.
Income is generally determined on
an accrual basis. Application of a cash
basis is allowed only if average sales
proceeds for four consecutive quarters
are less than RUB 1,000,000, excluding
VAT per quarter (USD 15,012)³.
Expenses are deductible if they are
incurred to generate income, are
economically justifiable and are properly
documented. There are some expenses
specifically mentioned in the Tax Code
that are also treated as non-deductible.
Consolidated profits tax reporting is
allowed only if the parent company has
a 90% or higher share in a subsidiary,
and the total annual amount of the VAT,
excise taxes, profits tax and mineral
extraction tax is RUB 10 billion or more
(USD 150 million)*. Additionally, the
group's total sales must be RUB 100
billion or more (USD 1.5 billion)*, and
total assets must be RUB 300 billion or
more (USD 4.5 billion)*. Consequently,
only a few major Russian companies
are able to use consolidated profits tax
reporting.
Agreements on the creation of
consolidated groups of taxpayers for
the purposes of consolidated profits tax
reporting will not be registered in 2016-
2017. Starting from 2018, consolidated
groups of taxpayers can be created for at
least five years.
Tax rates
The maximum profits tax rate is 20%,
including 2% paid to the Federal budget
and 18% to the regional budget. The
regional profits tax rate can be reduced
to 13.5% at the discretion of the
regional authorities.
Certain types of income are taxed via
a withholding mechanism at flat rates
stipulated by the Tax Code (see the
section Withholding income tax, p. 31).
Tax concessions
Gratuitous receipt of assets from a
parent company, a subsidiary or an
individual is not classed as taxable
income if:
-
The recipient's or transferor's
ownership in the other party's share
capital amounts to more than 50%
(with the exception of transferors
incorporated in one of the countries
on a list (of offshore zones) issued by
the Ministry of Finance);
The individual owns more than 50%
of the recipient company;
-
The property received (except for
money) is not disposed of within one
year from the date of receipt.
Receipt of property, property rights or
non-property rights from a shareholder
in order to increase net assets, as
well as the forgiveness of debt by a
shareholder, does not result in taxable
income, regardless of the percentage
of shares owned by the contributing
shareholder.
Tax losses can be carried forward for 10
years.
Tax accounting
The Tax Code requires taxpayers
(including permanent establishments)
to maintain separate accounts for
profits tax purposes. Tax accounting
rules differ from Russian statutory
accounting principles (e.g. with regard
to depreciation, recognition of interest
expenses, etc.)
The methodology applied for
profits tax purposes should
be clearly explained in the
taxpayer's tax accounting
policy. Once chosen, the tax
accounting policy cannot be
changed during the financial
year, except in response to
legislative changes.
Taxation of Foreign Legal Entities
(FLES)
For FLES whose activities in the Russian
Federation give rise to permanent
establishments (PE), profits tax on
income minus the expenses attributable
to the Russian PE is due.
Under Russian tax legislation, the
activities of a FLE give rise to a PE:
1
If a FLE has a place of business in
Russia (branch, office, bureau or
other independent subdivision),
and the FLE conducts business
activities in Russia on a regular
basis. In particular, a construction
site located in Russia, under certain
circumstances, can be considered
3 Actual exchange rate of the Central Bank of the Russian Federation as of 2 June 2016 (RUB 66,6156 USD1)
©2016 KPMG. All rights reserved.View entire presentation