By: Ivo van Rhijn
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Corporate tax in Russia in 2019
As I have discussed in this blog post the Russian Simplified Taxation System (STS) offers many advantages to small business operating in Russia. But STS is not for everyone. For example, it is not meant to be used by foreign companies setting up a Russian subsidiary. Subsidiaries of foreign companies in Russia should apply the General Taxation System. Among other things, this means that they will have to pay corporate tax on their Russian profits. In this blog post, I will discuss the Russian corporate tax in detail.
The general corporate tax rate in Russia is 20%. This is broken down as follows: 3% goes to Russia’s federal budget and 17% goes to the regional budget (the budget of the Russian region where the taxpayer is active). This breakdown is valid up until 2023. In 2024 2% will go to the Federal Budget and 18% to the regional budget. This is the general rule. To certain activities and in some regions, however, a lower rate applies. I will provide details about that below. But first, I will explain what exactly corporate tax in Russia is.
Corporate tax in Russia
Corporate tax in Russia is a direct tax that is levied on the profit that an organization makes. Profit of an organization is defined as its revenue minus its expenses.
Instead of using the term “corporate tax”, it would be better to call it “tax on profit of an organization” (налог на прибыль организации), which is a literal translation of the Russian words used. But, since corporate tax is a more familiar term, I will stick to this.
Revenue, according to Russian law, is not only money being paid to the organization, but also things it gets to use for free, for which they normally would have to pay. For example, if the organization gets a loan without interest or against an interest percentage lower than is common in the market, the difference between the normal interest rate in the market and the rate it actually pays times the amount of the loan will normally be regarded as revenue in Russia.
Expenses of an organization may be deducted from the revenue in order to calculate the amount of profit if they meet two criteria:
- The expenses should be economically justifiable
- The expenses should be documented
In order to determine if expenses are economically justifiable, the following question has to be answered affirmatively “Has the organization incurred these expenses with the aim to generate revenue?” Also if the organization has not actually succeeded in generating revenue by making the expenses, they will still be economically justifiable. What counts is the aim.
Money that is spent on advertising will be a justifiable expense, because the purpose of advertising is to generate more revenue.
To determine whether expenses have been documented as they should (the second criterium), we should look at Article 9 of the Russian law On Bookkeeping.
The first paragraph of this Article contains the following text:
Every economic operation should be laid down in a primary accounting document. It is not allowed to take primary accounting documents that are not based on real economic operations into account. This shall include imaginary and feigned transactions.
The demands to a company’s paperwork and especially regarding the so-called primary accounting documents are very specific in Russia and will be discussed in a separate blog post. Here it suffices to say that, if your company’s expenses are not properly documented, you will have trouble deducting them from your revenue to calculate the company’s profit and the amount of corporate tax it has to pay.
For the purpose of calculating a company’s taxable income, Russian law places its revenue in one of these 3 categories:
- Revenue from sales of goods, services, and of property rights to a good, Article 249 Russian Tax Code.
- Revenue from other sources than the abovementioned sales (внереализационные доходы in Russian). These are discussed in Article 250 of the Russian Tax Code. Examples of these kinds of revenue are:
- Revenue that the organization receives on the basis of it being a shareholder in other organizations
- Revenue in the form of statutory interest that they receive when their debtor doesn’t pay them on time.
- Revenue that is not taken into account when calculating a company’s taxable income. This is discussed in Article 251 of the Russian Tax Code. An example of revenue that is not taken into account is
Which organizations have to pay corporate tax in Russia?
According to Article 246 of the Russian Tax Code, the following organizations have to pay corporate tax in Russia:
- Russian organizations (unless they have chosen a different taxation system, like the Simplified Taxation System)
- Foreign organizations that have a permanent establishment in Russia or which earn income from Russian sources
- organizations, which are the responsible party of a consolidated group of taxpayers. A consolidated group of taxpayers is a voluntary association of taxpayers on the basis of a contract between them. In this contract, one or several entities are appointed as responsible parties for the entire group (Article 25.1- 25.3 Russian Tax Code). Conditions for registering a consolidated group with the Russian Tax Authorities are strict. In the year before registration, no less than 10 billion rubles of tax has to be paid by the group in its entirety and the total revenue in this year should be no less than 100 billion rubles ( around 143 million USD or 124 million Euros).
Which organizations are exempted from paying corporate tax in Russia?
The following organizations are exempted from paying corporate tax in Russia:
- Organizations that have the status of a member of a research or commercial project of the Skolkovo Project for Innovation are exempted from paying corporate tax in Russia for a period of 10 years, from the moment they acquire this status. If they lose their status, they will also lose their tax exemption.
- Revenue earned from games of chance in Russia are taxed with the Tax on Games of Chance. This revenue is therefore exempted from corporate tax.
Rates of Corporate Tax in Russia
|Kind of Revenue||Federal rate (in percents)||Regional Rate (in percents)||Article in the Russian Tax Code|
|General rate||3||17||Article. 284 point 1|
|Incoming dividends that a Russian organization received and that are paid to on the basis of the shares it owns in another organization, provided that one of the following conditions are met:|
The Russian organization that receives the dividend owns at least 50% of the organization that pays the dividend. At the moment the decision to pay the dividend is taken, the receiving Russian organization has owned this 50% for at least 365 days.
If, instead of shares, the receiving Russian organization owns at least depositary receipts that give it the right to at least 50% of the dividends of the organization that pays them.
|0||0||Article. 284 point 3 subpoint 1|
|Dividends that are received by Russian organizations, which do not meet the above mentioned requirements for the 0 % tax rate||13||0||Article. 284 point 3 subpoint 2|
|Dividends that are received by foreign organizations on the basis of shares they own in Russian organizations (in certain cases a treaty on avoidance of double taxation will provide for lower rates)||15||0||Article. 284 point 3 subpoint 3|
|Revenue from securities from Russian organizations (with the exception of dividends), the rights of which have been deposited on a securities account, which |
Is owned by foreigners or by an authorized third party.
|30||0||Article 284 lid 9 sub 4.2|
|Dividends from securities issued by Russian organizations, the rights to which have been deposited on a securities deposit of which the holder is either not a resident of Russia or an authorized third party.||15||0||Article 284 part 4.2|
|Revenue from renting out or subleasing vessels, airplanes, and other means of transportation, as well as containers (which also encompasses trailers and their requirements) for international transport.||10||0||Art. 284 point 2 part 2|
Art. 309 point 1 part 7 and punt 8
|Revenue from a foreign organization that is a distribution of profits and neither dividend nor a transfer of property||20||0||Article. 284 part 2 subpart 1|
|Royalties from intellectual property||20||0||Article. 309 lid 1 sub 4|
|Revenue from sales of shares in an organization of which more than 50% of the assets consist of Russian real estate. The same goes for sales of other kinds of securities from a company of which more than 50% of its assets consist of Russian real estate.||20||0||Article 309 point 1 sub point 5|
|Revenue from sales of Russian real estate||20||0||Article. 309 point 1 sub point 6|
|Revenue from renting out or subleasing property which is to be used in Russia.||20||0||Article 309 point 1 sub point 7|
|Revenue from leasing transactions of property that is located in Russia.||20||0||Article. 309 point 1 sub point 7|
|Contractual fines and penalties received from a counterparty for not complying with a contract (on time)||20||0||Article. 309 point 1 sub point 9|
|Other similar revenue||20||0||Other similar revenue|
|Revenue from a farm operating organization. This includes arable farming, cattle breeding, and commercial fishing||0||0||Article. 284 point 1.3|
|Profit from a member organization of the Skolkovo Project for Innovation after it has lost its right not to pay taxes (this happens after 10 years as mentioned above).||0||0||Article 284 point 5.1|
|Profit of an educational organization. This includes daycare centers for children.|
Dividend payments received and/ or interest payments on debt received by such an organization will be taxed according to the applicable rate.
|0||0||Article 284 point 1.1|
|Profit of medical organizations. This rate doesn’t apply to dividends payments and interest on debt that medical organizations receive.||0||0||Article.284 point 1.1|
|Profit of organizations that offer social services ( социальное обслуживание граждан) |
(социальное обслуживание граждан). Dividend payments received and/ or interest payments on debt received by such an organization will be taxed according to the applicable rate.
|0||0||Article. 284 point 1.9|
|Profit from activities related to the extraction of fossil fuels in new offshore fields||20||0||Article 284 point 1.4|
|Profit of organizations participating in regional investment projects||0||10||Aricle. 284 point 1.5 & Article.284.3 point 3|
|Profit of organizations participating in regional investment projects that are not included in the register||0||0-10||Article 284 point 1.5-1|
Article. 284.3 point 3
|Profit of controlled foreign corporations||20||0||Article 284 point 1.6 & Article. 309.1|
|Profit of organizations participating in a free economic zone||0||Not more than 13,5||Article 284 point 2, sub point 1.7|
|Profit of organizations – residents of the territory of advanced socio-economic development and the free port of Vladivostok||0||Not more than 5%, this rate is applicable for a period of 5 years from the moment the first profit was made. The next 5 year period the rate will be at least 10%.||Article 284 point 1.8, Article. 284.4|
|Profit of organizations – participants of the special economic zone in the Magadan region||0||Not more than 13.5%||Article. 284 point 7 sub point 1|
|Profit received from the sale or other disposal (including redemption) of shares of Russian organizations (shares in the authorized capital of Russian organizations) acquired on or after January 1, 2011, which have been owned by the taxpayer for at least five years||0||0||Article. 284 point 4.1 sub point 1|
Article. 284.2 point 7 sub point 5
|Profit received from the sale or other disposal (including redemption) of shares, or bonds of Russian organizations or investment funds, which are securities of high-tech (innovation) sector of the economy|
Russische economy .
Article 284 point 2 sub point 4.1
|Profit received from the implementation of an investment project in the special economic zone in the Kaliningrad region||0 |
This rate is applicable six tax periods (which usually coincide with calendar years) from the moment of receiving the first profit.
Afterwards a rate of 1,5% applies
This rate is applicable six tax periods (which usually coincide with calendar years) from the moment of receiving the first profit. Afterwards a rate of 8,5% applies.
|Profit from tourism and recreation activities in the Far Eastern Federal District (Дальневосточный федеральный округ)||0||0||Article. 284.6 lid 1 sub 2|
|Profit derived from activities in the touristic and recreational special economic zones, united in a cluster.||0||Not more than 13,5||Article 284 point 7 sub point 1 and 1.2|
|Profit received from activities in technical-innovative special economic zones.||3||Not more than 13,5||Article. 284 point 5|
|Profit of organizations that are residents of special economic zones. With the exception of the above mentioned touristic recreational zones, clustered, and technical-innovative zones.||2||Not more than 13,5||Article. 284 point 1.2-1, paragraph 7|
How it should be paid
During the course of the year, the taxpayer should pay advance payments for the corporate tax.
A fiscal year in Russia coincides with the calendar year. The final tax declaration of the past year must be made no later than March 28 of the following year.
The corporation tax has to be paid by means of monthly advance payments (Article 286).
Organizations that meet one of the following characteristics only make advance payments for corporation tax once a quarter (paragraph 3):
- Organizations whose total turnover of services or works from the past 4 quarters did not exceed 15 million rubles
- Government agencies (with the exception of museums, libraries, and concert organizations)
- Autonomous institutions
- Foreign organizations with a permanent establishment in Russia
- Non-profit organizations that have no income from the sale of goods, services, or works
- Partners of simple partnerships and of partners of investment partnerships that derive income from participation in simple partnerships