Doing Business in Russia

38 Doing Business in Russia both in Russia and a foreign country, in particular if a FLE should be considered a Russian tax resident if one of the following conditions is met: (1) the company's financial accounting or management accounting is performed in Russia; (2) the company's documents are generated and processed in Russia; (3) the HR function at an operational level is performed in Russia. However, the management rule cannot see an FLE recognised as a tax resident of Russia if it carries out its business activities at its foreign place of residence using qualified personnel and its assets are outside Russia (that is, providing the business is resident in a treaty-protected jurisdiction). Some exceptions apply to FLES engaged in specific listed activities. FLES which shift their tax residency to Russia become subject to unlimited tax liabilities in Russia, i.e. their worldwide income becomes subject to Russian corporate profits tax. Beneficial ownership requirement A domestic beneficial ownership requirement is a condition controlling whether reduced withholding tax rates can be applied in accordance with the treaties signed with Russia. The Tax Code defines a beneficial owner as: - a person who has the right to independently use and/or dispose of the income by virtue of: - participation (direct or indirect) in the company, control over the company, or other circumstances, or a person in whose interest another person has the power to dispose of the income. Further, the Tax Code provides a list of persons who could not be considered beneficial owners of income. This relates to persons who: - possess limited powers in relation to the disposal of that income, or carry out merely intermediary functions in relation to that income in the interest of another person, without performing any other functions and without assuming any risks. The payer of income, who acts as a withholding tax agent, has the right to request documentary proof of beneficial ownership from an income recipient. If the latter is not able to provide such proof, the tax agent may withhold tax at the full domestic rate. In addition, the Tax Code provides for a so-called "look-through" approach, i.e. the right to apply (under certain circumstances) a reduced withholding tax rate under the treaty with the beneficial owner's jurisdiction, even if another person is an immediate recipient of income. KPMG ©2016 KPMG. All rights reserved. Moscow

View entire presentation