Russia: Tax System

Tax Rate For Foreign Companies

Russian legal entities pay taxes on their worldwide income. Foreign legal entities pay tax on Russia-source income derived through a permanent establishment at the standard 20% rate. Furthermore, they are subject to withholding tax on Russian-source income not related to a permanent establishment (from 10% to 20%, depending on the type of income and the calculation method).

Foreign tax credit is available but may not exceed the amount of Russian tax payable on foreign income.

Starting from December 2022, the Russian Government Commission has enforced a "contribution" charge of 10% on the transaction price for any change of ownership of a Russian subsidiary. However, in March 2023, the fee was modified to 5% based on the fair market value of the Russian subsidiary.

Capital Gains Taxation

Capital gains are treated as ordinary business income and taxed at the standard corporate tax rate of 20%.
Capital gains received from 2018 derived from the sale of (i) unlisted shares or participations in Russian companies, and (ii) shares in Russian companies held for more than five years, can be subject to a participation exemption, provided that real estate properties located in Russia represent less than 50% of the companies’ directly or indirectly held assets.
A participation exemption also is available for capital gains on the sale of listed shares in high-technology Russian companies that are held for more than one year.

Main Allowable Deductions and Tax Credits

Expenses are deducted on an accrual basis and have to be properly documented and aimed at generating income to be tax-deductible.
Expenses related to all types of mandatory insurance are deductible and subject to government tariff limitations, wherever established. Voluntary insurance expenses are deductible to the extent that they relate to the insurance of damage and losses related to certain classes of assets, and the insurance of construction activity risks. The deductibility of long-term life and pension insurance is limited to 12% of the payroll fund, the one for voluntary medical insurance to 6% of the payroll fund.

R&D expenses are deductible within one year after completion (in some cases they can be multiplied by a coefficient of 1.5). Furthermore, a provision for future R&D expenses may be accrued for tax purposes.
Losses in the form of bad debts that are written off are usually deductible. Charitable contributions deductibility is capped at 1% of revenues (conditions apply). Taxes are generally deductible, fines are not.

Regarding net operating and capital losses, the amount of a recognised loss of periods prior to 1 January 2017 cannot exceed 50% of the current year tax base for corporate income taxation purposes. Starting from 2021, recognition of the entire amount of losses became possible again. The carryback of losses is not permitted.

Numerous tax incentives are available, including regional tax reductions for investment projects, tax reductions for technology and software companies, a ten-year tax holiday for the Skolkovo Innovation Centre, a 0% profits tax rate for specific educational and medical services and a 150% profits tax deduction for qualifying R&D expenditure. Since 1 January 2021, regions may also establish investment tax credits for R&D activities. Other special tax regimes (e.g., regional investment projects, special investment contracts, or “territories of advanced social and economic growth”) grant a 0% profit tax rate, property tax reduction, and other benefits.

Other Corporate Taxes

Regional authorities set taxes including property tax (it cannot exceed 2.2% of the taxable value), transport tax and gambling tax.
Stamp duty is applied for state registration of certain rights and contracts. A Mineral Resources Extraction Tax (MRET) is levied on coal, oil, gas, and gas condensate and is calculated using the extracted volume of the relevant resource (the tax rate varies from 3.8% to 8%; reduced MRET rates apply to investors in the Russian Far East). A water tax is levied on taxpayers consuming water for specific purposes.
Moscow applies a trade levy on the assets used in retail and wholesale trade.

From 01.01.2023, Federal Law 269 of 05.07.2023 united the Russian Pension Fund and the Social Insurance Fund into a new fund - the Russian Pension and Social Insurance Fund. Hence, there is now a unified insurance contribution tariff applicable to mandatory pension insurance contributions, mandatory social insurance contributions for temporary incapacity for work and in connection with maternity and mandatory health insurance contributions.
The single tariff for these categories of contributions is set as follows:

• within the established unified maximum amount of the base for calculating insurance contributions - 30%
• above the established unified maximum amount of the base for the calculation of insurance contributions - 15.1%

The unified maximum insurance contribution base in 2023 is equal to RUB 1,917,000.

Other Domestic Resources

Federal Tax Service of the Russian Federation

Country Comparison For Corporate Taxation

Source: The World Bank - Doing Business, Latest data available.

Accounting System

Accounting Standards

In Russia, accountancy is mainly interpreted as the rules defining the way of keeping accounts books. IFRS Standards became mandatory for the filing of consolidated financial statements by domestic and foreign companies in 2012. Russian Accounting Standards (RAS), which are converged to a great extent with IFRS, are required for standalone statements. SMEs currently use accounting standards issued by the Ministry of Finance.
For further information, consult the ICAEW website.

Accounting Regulation Bodies

Ministry of Finance
Russian Central Bank

Accounting Law

Accountancy is defined in Russia by the State rather than by professional organizations.

The Russian accounting framework is defined at three levels:
- The Federal Law on Accounting, Federal Law on Consolidated Financial Statements and Federal Law on Introducing Changes to the Separate Legislative Acts
- The Russian Accounting Standards (RAS) defined by the Ministry of Finance and the Chart of Accounts ;
- The accounting standards governing the banking and finance sectors developed by the Central Bank.

Difference Between National and International Standards (IAS/IFRS)

IFRS Standards are required for listed companies, financial institutions and some government-owned companies. Russian accounting standards (RAS), which are required for standalone financial statements, are largely converged with IFRS. Furthermore, the latter applies automatically in areas not covered by RAS (including Joint Arrangements, Hedging, Pension Plans, Share-Based Payments).

Accounting Practices

Tax Year

From 1 January to 31 December.

Accounting Reports

Company annual accounts must be composed of:
- a balance sheet,
- a profit and loss account,
- notes.
Small companies can produce simplified accounts.

Publication Requirements

Only certain companies, such as insurance or joint-stock companies, are requested to publish their accounts with an audit.

Accountancy Profession

Accountants

The term accountant is generally applied to those working inside the company. Outside contributors are called auditors and regulated at the state level. The Ministry of Finance has overall responsibility for the regulation of the auditing profession under the Federal Law on Auditing Activities. The Federal Treasury conducts quality control review of auditors providing services to public-interest entities (PIEs) such as listed companies, financial institutions and state corporations. Accountants are self-regulated through the membership requirements of the Institute of Professional Accountants of Russia (IPAR) (membership is voluntary).

Professional Accountancy Bodies

IPBR, Russian Institute of Professional Accountants

Member of the International Federation of Accountants (IFAC)

Russia is a member of the International Federation of Accountants (IFAC).

Member of Other Federation of Accountants

Russia is a member of the European Accounting Association.

Audit Bodies

Companies with an annual turnover greater than RUB 400 million or total balance sheet assets exceeding RUB 60 million in the previous year must have their financial statements audited annually. You can contact the Russian Institute of Internal Auditors.

Allowable Deductions and Tax Credits

In general, the deductions are available only to tax residents and are usually limited to RUB 120,000 per annum.
An exemption of RUB 1,400 per month is available for a first and second child and RUB 3,000 for a third and each subsequent child (only if the cumulative annual income of the parents is below RUB 350,000).

Tax deductions are available for property-related allowances, social allowances, business expenses and standard allowances. Qualifying gifts and inherited property are tax exempt.

Donations to certain non-commercial organisations and qualifying charities are deductible from taxable income within certain limits. Individuals can deduct from taxable income the costs of their own and their children's education in Russian-licensed institutions (up to RUB 50,000 per child), as well as the costs of medical services (for themselves and close relatives) and medicines.

Expenditures incurred by an individual on the acquisition or construction of an apartment or house and related plot land, as well as payment of interest on the respective loans, are allowed as a deduction of up to RUB 2 million with respect to expenditures plus the amount of interest of up to RUB 3 million (available only to tax residents and only once). Taxable income from the sale of property (except for immovable property) owned for less than three years may be decreased by expenses incurred, or by a minimum deduction of RUB 1 million (for immovable property owned for less than five years), and RUB 250,000 (for other property, except securities).

Certain statutory allowances, state pensions (and certain other pensions) and revalued shares (issued as a result of statutory revaluation, merger or reorganisation) are exempt from taxation.

Special Expatriate Tax Regime

Russian residents are taxed on worldwide income, while non-residents are taxed on Russian-sourced income.
A Highly qualified specialist (HQS) is a foreign national with work experience, skills, or accomplishments in a specific field who is employed in Russia at a monthly salary of RUB 167,000 minimum (with certain exceptions). Income earned from labour activity by non-resident individuals with HQS status is taxed at standard rates instead of the 30% tax rate that applies to such income earned by non-residents who do not have HQS status.
Income earned by foreign employees hired under the highly qualified specialist regime is exempt from social security contributions (only accident insurance contributions are due).

Capital Tax Rate

No capital duty. A special 35% rate applies to certain income including voluntary insurance contributions, deposits on foreign currency and interest on certain bank deposits.
A real property tax is imposed annually at rates ranging from 0.1% to 2% of the cadastral value or the total inventory value, adjusted by a “deflator” coefficient.
Social security contributions are borne only by the employer. Self-employed individuals must contribute to social security.
A land tax of 0.3% applies to agricultural and residential land and 1.5% on other types of land.
Dividends are taxed at a rate of 13% for residents and 15% for non-residents.