LAB University of Applied Sciences
Faculty of Business Administration, Lappeenranta
Degree Programme in International Business
Olga Vrublevskaia 1801504
Corporate Taxation in Russia
Corporate Taxation course, Spring 2020
Report 2020
Contents
1
Introduction ..................................................................................................3
2
Principles of corporate taxation in Russia ....................................................3
3
4
2.1
Overall principles of taxation .................................................................3
2.2
Corporate taxation overview .................................................................4
Tax administration principles in Russia ........................................................4
3.1
State structure ......................................................................................4
3.2
Tax administration systems in Russia...................................................5
3.2.1
General system .............................................................................5
3.2.2
Single tax system ..........................................................................6
3.2.3
Simplified taxation system .............................................................6
Basic requirements for business organizations to be taxed .........................7
4.1
Registration procedure .........................................................................7
4.2
Tax registration requirements ...............................................................8
5
Forms of incomes in corporations that are subjected to be taxed ................8
6
Forms of taxes corporations are subjected to be taxed ...............................8
7
8
6.1
Taxes paid by corporations in Russia ...................................................8
6.2
Social contributions, pensions and other employer contributions .........9
Tax reporting and payment ........................................................................ 10
7.1
Tax account system ............................................................................ 10
7.2
Tax reports ......................................................................................... 11
7.3
Periods and payment terms per tax types .......................................... 11
7.4
Tax penalties ...................................................................................... 12
Conclusion ................................................................................................. 13
References........................................................................................................ 14
Figures and tables ............................................................................................ 15
2
1 Introduction
Corporate taxation is the process of levying tax burden placed on corporations
by the government. (Kagan 2019) In different countries different taxes and rates
apply to firms and systems of payment and overall paperwork differs sometimes
very largely. In this report the author discusses features of corporate taxation in
Russian economy. Principles of corporate taxation, tax administration issues, requirement for being taxed, forms of corporate income, types of corporate taxes,
tax reporting and payment are overviewed in the next parts.
2 Principles of corporate taxation in Russia
Russian taxation system is based on 10 principles which proceed from world history. (Элитариум 2020) These classical principles have been developing over
time and modern Russian taxation system relies on them at least de jure. Regarding special corporate taxation principles, a few of them will also be named
below.
2.1
Overall principles of taxation
Russian taxation relies on 10 principles which are all logically interconnected.
They are (Элитариум 2020):
1. Taxation legitimacy
2. Taxation universality and equality
3. Justice principle
4. Publicity
5. Principle of establishing taxes and fees in due process
6. Principle of economic feasibility
7. Principle of presumption of interpretation in favour of the taxpayer
8. Certainty of tax burden
9. Principle of the unity of the economic space of the Russian Federation and
the unity of tax policy
10. Unified system of taxes and charges
3
2.2
Corporate taxation overview
There is no certain framework for saying that Russian Federation has a particular
number of corporate taxation principles. Nevertheless, after examining special
literature, the author came to determine these principles as follows (Expatica
2020):
1. Establishing tax rates and granting of tax incentives is joint responsibility
of federal and regional authorities
2. Different special regimes may apply in different areas and cases
3. The Tax Code defines all tax related issues and regulations
4. Tax period runs from January 1st to December 31st
5. Foreign as well as local companies are liable to pay corporate taxes
6. Russian tax residency is defined as worldwide income of an entity taxable
in Russia
7. A list of non-taxable incomes is comprised of 40 types of incomes
8. The expenses in Russian Tax Code are divided into sales and non-sales
and are deductible under certain circumstances
3 Tax administration principles in Russia
3.1
State structure
Russia – is a democratic federative jural state having a republican form of government. It consists of different types of subjects including republics, territories
(krais), regions (oblasts), cities of federal significance, autonomous districts
(okrugs) which are equal in their rights. (Demidova n. d.) Therefore, Russian taxation system consists of levels as well: federal, regional and local. General rules
are established and implemented at the federal level, while regional and local
levels regulate particular elements of regional and local taxes. As an example,
they can vary tax rates and provide incentives. (Dentons 2020) In the table below
the breakdown of local, regional and federal taxes in Russia is represented. (Federal Tax Service of Russia 2020a)
Tax type
Taxes
4
Federal
VAT, excises, personal income tax,
corporate income tax, mineral extraction tax, water resources tax, fees for
exploiting of wildlife and for the use of
aquatic biological resources, stamp
duty
Regional
Corporate property tax, transport tax,
gambling tax, trade fee
Land tax, individual’s property tax
Local (municipal)
Table 1. Taxes in Russia.
The Federal Tax Service is the principal tax authority in Russia. It has its territorial
subdivisions and inspectorates that carry out supervision in the form of in-house
or field tax audits. The Service controls the accurate calculation and proper tax
payment. (Dentons 2020)
3.2
Tax administration systems in Russia
In Russia the most widespread company types are limited liability company
(«OOO»), open joint stock company («OAO») and closed joint-stock company
(«ZAO»). (Federal Tax Service of Russia 2020b)
There are 3 tax administration systems to choose from that can be applied by
any type of organisation (Expatica 2020):
1. General taxation system
2. A single tax on assigned income
3. Simplified tax system
3.2.1 General system
General system requires to pay such corporate taxes as basic rate of corporate
income tax, tax on company’s assets, VAT, employees’ tax. (Expatica 2020) The
taxable period here runs from 1st of January to 31st of December. Corporate Income Tax (CIT) is paid on a monthly or quarterly basis. The final CIT payment is
5
due by 28th of March of the following calendar year. (PWC Worldwide Tax Summaries 2019a)
3.2.2 Single tax system
Single tax system is exempt from income tax, property tax and the VAT. It means
that Russian corporate taxes are paid not from real income but from profits for
each activity. This approach is not available in all regions and has some restrictions defined by the law. In this case payment is made at the end of each
quarter. Generally, the single tax rate is 15%. (Expatica 2020) This tax system is
also called unifies tax system and the taxpayers have to satisfy certain criteria to
follow it: average number of staff must be 100 or lower; the contribution of other
legal entities has to be 25% or lower. The payments are incurred quarterly.
(KPMG 2018, p. 29)
3.2.3 Simplified taxation system
Simplified taxation system aims at small businesses. Here, the company is exempt from income tax, VAT, property tax with some exceptions. Also, fewer reporting is required in this case. Moreover, the enterprise can either opt for taxation on income or income minus expenses. (Expatica 2020) This system can be
applied when the following criteria are met: the revenue for 9 months does not
exceed RUB 112 500 000 (annual indexation); the net book value of fixed assets
does not exceed RUB 150 000 000; average annual number of staff does not
exceed 100. However, there are entities that cannot apply this system: Russian
legal entities with branches; foreign legal entities (FLEs) and representative offices; banks, insurance companies, pension/investment funds, entities in which
other legal entities have a share of more than 25%; parties to production sharing
agreements. Here the tax rates can be as follows: 6% on revenues generally;
15% on profits. Taxable periods are quarters and the annual final payment must
be made by 31st March of the following calendar year. (KPMG 2018, p. 30)
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4 Basic requirements for business organizations to be taxed
Whether the company is local or foreign, it is subject to the same Russian corporate tax rate. Foreign companies, though, only pay taxes if they permanently reside or have administrative board and earn profits from Russian sources. For
Russian companies it is also possible to create tax groups that have a merged
tax return. (Expatica 2020)
4.1
Registration procedure
The basic requirement is that all taxpayers must acquire tax registration and be
assigned a taxpayer identification number. (PWC Worldwide Tax Summaries
2019a)
To register a business in Russia several steps must be taken:
1. Decide in business legal structure;
2. Form foundation documents (company charter, amendments and changes
to the charter, minimum capital requirements);
3. Prepare the set of required documents for registering (application for registration, protocol on forming a company, foundation documents in duplicate, extract from business register as a proof of the legal status of the
foreign legal entity, documents on payment of the state duty – 4000 RUB);
4. Fill in these documents to the registration tax office (paper filing by
hand/paper filing by post/e-filing). The examination takes no more than 5
working days;
5. Receive the incorporation documents (the Incorporation Certificate, the
Tax Certificate, copy of foundation documents, Extract from the Common
State Register of the Legal Entities);
6. Manufacture the seal
7. Open a bank account (the tax authority should be notified within 7 days
from the date of account opening)
It should be noted that the tax office must be chosen according to company’s
location as it must be registered in a local branch of it. (Federal Tax Service of
Russia 2020b)
7
4.2
Tax registration requirements
There are no requirements to especially register VAT payments or profit tax payments due to the single tax ID number for all of them. The only requirement is to
obtain additional tax registration IDs from the tax authorities if their subdivisions
of an organization located in other places (other than the head office). (KPMG
2018, p. 23)
FLEs have to register for taxes within 30 calendar days from their starting business activity date (on Russian territory). (KPMG 2018, p. 23)
Russian tax ID is known as the INN. It can be found on the certificate of registration of a business as a taxpayer. (OECD n.d.)
5 Forms of incomes in corporations that are subjected to be
taxed
Taxpayer’s income is divided into two categories: sales income and non-sales
income. Sales income is the one that derives from sales of services, goods or
property rights. All the other incomes are considered as non-sales. (Expatica
2020)
The taxable revenue in Russian corporation is comprised of the sales revenue
and the revenue from other sources than the sales (revenue from shares in other
organizations, revenue in the form of statutory interest, rent revenue) (Tax Code
of Russian Federation 2000a)
The non-taxable revenue includes 40 types from which the following are the most
important: collateral received, advances received, liquidation receipts, equity contributions to charter capital, loan receipts and payments, gratuitous aid, funds
received by an agent for the benefit of the principal, withdrawal of equity, intercompany asset transfers. (Expatica 2020)
6 Forms of taxes corporations are subjected to be taxed
6.1
Taxes paid by corporations in Russia
Russian businesses are liable to the following taxes (Federal Tax Service of Russia 2020a; Expatica 2020; Schneider Group 2020):
8
1. Profit tax (20% generally; 10% on using, holding or leasing ships, planes
and other transport);
2. Withholding taxes (0% on dividends received by Russian companies due
to participation exemption rule; 9% on dividends received by RLE from
RLE (Russian Legal Entity); 15% on dividends received by RLE from FLE;
20% for non-residents);
3. VAT (0%, 10%, 18%);
4. Property tax (up to 2.2%)
5. Minerals extraction tax (rate determined for each type of extracted mineral);
6. Land tax (0,3%-1,5%);
7. Stamp duty (it is not used as a single tax in Russia, however, it may be
mentioned as a whole for any different establishing duties);
8. Biological resources use fees (rate established separately for each object
of flora);
9. Water tax (rate determined for rivers, lakes, seas and economic areas; set
in RUB per 100 cubic meters)
10. Excises (separately established for each excised good)
11. Transport tax (each subject of Russian Federation establishes it on its
own; RUB 0 to 200);
12. Gambling tax (rates expressed in money from 25 000 to 125 000 RUB per
1 gambling item);
13. Imputed tax (15%)
6.2
Social contributions, pensions and other employer contributions
Prior to pay contributions and salaries, the company has to register as an employer. This happens in different authorities. As an employer the company has to
register in the tax authorities and in all the funds that require payment of contributions. These funds include: Social Insurance Fund and Pension Fund.
(Правничок 2020)
There are also a few social contributions that employers must pay in Russia
(Schneider Group 2020):
1. Pension contribution (generally 22%; when the income reaches more than
876 000 RUB – 10%);
9
2. Social Security contribution (generally 2.9%; when the income reaches
more than 755 000 RUB – 0%);
3. Medical insurance (5.1%);
4. Insurance of accidents (0.2-85% depending on type of activity)
7 Tax reporting and payment
7.1
Tax account system
Taxpayers in Russia must calculate the tax base from the results of each accounting period based on accounting tax data. The purpose of tax accounting is
to form complete and accurate information on the procedure for accounting for
taxation of economic operations carried out by the taxpayer during the tax period.
Another aim is to provide this information to both internal and external users for
monitoring the calculation and timely payment. (Tax Code of Russian Federation
2000b)
The system itself should be organized by the taxpayer independently and should
be applied consistently throughout tax periods (principle of consistent application). The taxpayer should also consider the procedure of tax recording and tax
accounting policies. It is important that no tax authorities can establish compulsory forms of tax accounting documents for taxpayers. (Tax Code of Russian
Federation 2000b)
Tax accounting data must reflect the following: 1) procedure for the determination
of the amount of income and expenditure; 2) procedure for determination of the
proportion of expenses; 3) amount of the balance expenses which is to be
charged to expenses in ensuing tax periods; 4) procedure for the determination
of amounts of created reserves; 5) amount of indebtedness in respect of tax settlements with the budget. Tax accounting data shall constitute tax secrets. People
with the access to the accounting data must be obliged to preserve these secrets.
(Tax Code of Russian Federation 2000b)
To support tax accounting data the following documents shall be in place: 1) primary accounting documents including accountants’ reports; 2) analytical tax ledgers; 3) computation of the tax base. (Tax Code of Russian Federation 2000b)
10
7.2
Tax reports
Businesses in Russia must submit reports according to the timing set by Russian
legislation. This is done to meet the requirements of the tax regimes. Legal entities (in some cases depending on the type of organization) must prepare and
deliver the following reports: VAT Tax return, Export VAT confirmation, Corporate
Income Tax return, Corporate Property Tax return, Transportation Tax return,
Land Tax return, Mineral Extraction Tax return, Personal Income Tax return, Reporting on the simplified tax system (if followed), Financial accounting statements, Tax planning, Reconciliation with Tax Authorities, Desk Tax Audit, Field
Tax Audit. (Outsourcing solutions n.d.)
Tax returns and financial statements may be submitted electronically. Some
taxes (e.g. VAT) require electronic submission. It is essential that the business
must always submit tax returns, even If there was no economic activity. (Outsourcing solutions n.d.)
7.3
Periods and payment terms per tax types
Tax type
Tax period
Payment terms
Profit tax
Calendar year
Paid for each reporting period, as a
rule, on a monthly basis
VAT
A quarter of a year
Paid for the expired tax period in
equal shares no later than on the
20th day of each of the three months
following the expired tax period
Property tax
A quarter of a year Paid by 30 March of the year followassets
Minerals
ing the reporting year
Paid not later than the 25th day of the
extrac- Calendar month
tion tax
month following the expired tax period
Land tax
Calendar year
Due date cannot be set earlier than
February the 1st, following next to
the expired tax period
11
Due dates are determined by the local tax authorities
Stamp duty
Paid before accomplishing entitled
authorities and official persons relevant in law activities
Biological
re-
Paid in form of regular and single du-
sources use fees
Water tax
ties
A quarter of a year
Paid not later than the 20th day of the
month following the expired period
Excises
Calendar month
Paid not later than on the 25th day of
the month following the reporting period
Transport tax
Calendar year
Due date is established by laws of
the subjects, but not earlier than on
the 1st of February following the expired tax period
Gambling tax
Paid not later than 20th date of a
Calendar month
month after the expired tax period
Imputed tax
A quarter of a year
Paid not later than 25th date of a first
month of forthcoming tax period
Table 2. Periods and terms of payment per tax types (Federal Tax Service of
Russia 2020c; KPMG 2018, p. 28)
7.4
Tax penalties
There are different penalties for different types of oversights when filing the tax.
When the tax returns are filed too late the file-to-failure penalty may apply at a
rate of 5 to 30%. However, it cannot be less than RUB 1000. In case of inaccurate
returns the penalty is RUB 10 000. If the negligence is repeated, it increases to
RUB 30 000. When the tax is underpaid, the penalty of 20% of the underpayment
follows. (Accountor 2016)
12
The cases of failing the supply of accounting records to the authorities lead to
imposing of RUB 200 penalty for each failure. If the reports on controlled transactions are not filed or filed incorrectly, a penalty of RUB 5 000 is required. (Accountor 2016)
8 Conclusion
Russian system of corporate taxation is quite complex and unfortunately requires
a lot of paperwork as mainly the taxes cannot be filed electronically. Moreover,
due to the federal structure of the state, the rate varies in different parts of the
country and it is hard to estimate the tax amount in general conditions. However,
the positive side is that there are no excessive difficulties in registering for taxes
as the only preliminary requirement is to follow the procedure of legal entity registration. In author’s pinion. Russian taxation system is not fair enough for small
businesses especially because in economic realities of the country the rates are
unnecessarily high.
All in all, although the changes are occurring at a very slow pace, they may once
lead to the establishing of a more modern and structured system of corporate
taxation. It may take a substantial amount of time, but certainly many things are
now being discussed and reviewed regarding corporate taxes.
13
References
Accountor. 2016. Tax penalties in Russia. https://www.accountor.com/en/russia/tax-penalties-russia. Accessed on 31st of March 2020.
Demidova, E., A. N. d. State structure. Russia fact file. Ministry of Education and
Science of the Russian Federation. http://en.russia.edu.ru/russia/state/. Accessed on 10th of March 2020.
Dentons. 2020. Global tax guide to doing business in Russia. https://www.dentons.com/en/issues-and-opportunities/global-tax-guide-to-doing-business-in/russia. Accessed on 10th of March 2020.
Expatica. 2020. A complete guide to the Russian corporate tax rate. Taxes. Finance.
https://www.expatica.com/ru/finance/taxes/corporate-tax-in-russia1071356/?utm_source=301&utm_medium=redirect&utm_campaign=2020-0320. Accessed on 6th of March 2020.
Federal Tax Service of Russia. 2020a. Taxes in Russia. https://www.nalog.ru/eng/taxation_in_russia/. Accessed on 10th of March 2020.
Federal Tax Service of Russia. 2020b. Register a legal entity. Starting a business.
Businesses. https://www.nalog.ru/eng/companies/reg_komp/reg_russ/. Accessed on 10th of March 2020.
Federal Tax Service of Russia. 2020c. Taxes paid by legal entities.
https://www.nalog.ru/eng/companies/tax_ind/. Accessed on 31st of March 2020.
Kagan, J. 2019. Corporate Tax. Government and policy. Economy. Investopedia.
https://www.investopedia.com/terms/c/corporatetax.asp. Accessed on 6th of
March 2020.
OECD.
N.d.
Information
on
Tax
Identification
Numbers.
https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-identification-numbers/RussianFederation-TIN.pdf. Accessed on 17th
of March 2020.
Outsourcing solutions. N.d. Tax compliance services. https://rusoutsourcing.com/services/preparation-and-submission-of-tax-reports. Accessed on 31st
of March 2020.
KPMG. 2018. Doing Business in Russia. Pp. 23, 28-30
PWC Worldwide Tax Summaries. 2019a. Corporate – Tax administration. Russian
Federation.
https://taxsummaries.pwc.com/russian-federation/corporate/tax-administration. Accessed on 10th of March 2020.
Schneider Group. 2020.Tax rates in Russia - An Overview. https://schneidergroup.com/en/tax-rates-russia/. Accessed on 17th of March 2020.
Tax Code of Russian Federation. 2000a. Article 250. Non-sale income.
14
Tax Code of Russian Federation. 2000b. Article 313. Tax accounting. General
Provisions.
Правничок. 2020. Особенности регистрации ИП как работодателя в России.
Элитариум. 2020. Принципы налогообложения в России: система налоговых
координат. Макроэкономика. Экономика. http://www.elitarium.ru/principy-nalogooblozhenija-rossija-osnovy-nalog-sbor-sistema/. Accessed on 6th of March
2020.
Figures and tables
Table 1. Taxes in Russia. (Federal Tax Service of Russia 2020a)
Table 2. Periods and terms of payment per tax types (Federal Tax Service of
Russia 2020c; KPMG 2018, p. 28)
15