5. Taxation

For tax purposes, an individual is regarded as resident in Russia for a calendar year if he/she resides on Russian territory for 183 or more days during 12 consecutive months of the tax period, regardless of citizenship. The period of residence will not be interrupted if an individual leaves Russia for less than six months for medical treatment or studies.

a. Taxation of residents

Russian tax residents are taxed on their worldwide income (cash, benefits-in-kind, or other material benefits) less allowable deductions, subject to the exemptions in the Russian Tax Code.

  • Russian individual income tax applies at a flat rate of 13 per cent.
  • Certain types of income (e.g. excessive interest on bank deposits) are subject to higher tax rates of up to 35 per cent.
  • A tax rate of 9 per cent applies to dividend income and interest on mortgage bonds issued before 1 January 2007.
  • Income earned by an employee or individual contractor (not registered as an individual entrepreneur) in Russia is taxed at source and withheld by the employer.

Capital gains are taxed under the income provisions at the ordinary rate of 13 per cent. There are special provisions relating to individual income tax deductions on certain types of property (including immovable assets), which could eliminate the taxation of a capital gain, depending on the holding period.

b. Taxation of non-residents

Individuals who have spent less than 183 days in Russia during 12 consecutive months are subject to Russian individual income tax on their Russian source income (as defined in the Russian Tax Code), except for dividends, at a flat rate of 30 per cent. Dividends received by a non-resident from Russian companies are subject to 15 per cent withholding tax. Reductions or exemptions may be available under a relevant double tax treaty.

Generally, non-residents are not eligible for tax deductions.

Income arising from the sale of property owned in the non-resident’s personal name is subject to individual income tax where it is within the Tax Code or is deemed to be Russian source income.

Where immovable property is held through a permanent establishment of a non-resident company, it will be taxed under the corporate profits tax rate of 20 per cent (income less documentary confirmed acquisition cost). The tax will be withheld at source by the Russian tax agent and may be reduced under the applicable tax treaty. The same rates and rules apply to income derived from intellectual property rights held by a non-resident company.

c. Gift and inheritance tax

Amendments on 1 January 2006 repealed inheritance and gift tax and made certain gifts received by persons other than close relatives of a donor subject to the general individual income tax regime.

The receipt of property in Russia by inheritance is not subject to Russian taxation. Gifts received by close relatives of the donor are exempt from Russian individual income tax. Close relatives are determined by the Family Code and includes spouses, parents and children (including adoptive children), grandparents, grandchildren and siblings.

Gifts of immovable property, vehicles, stock and other participatory interests received by individuals other than close relatives of a donor are subject to the general individual income tax regime. Gifts of other types of property, including cash, made to persons other than close relatives, are exempt from Russian tax.

d. Taxation of Russian legal entities

The maximum corporate profits tax rate for companies is 20 per cent, payable at a rate of 2 per cent to the federal budget and 18 per cent to regional budgets. The regional authorities may, at their discretion, reduce their regional profits rate to 13.5 per cent.

e. Other Taxes

i. VAT – imposed on all goods imported into Russia and to the sale of goods, work and services at a rate of 18 per cent for most types of goods, including oil and gas products. A ten per cent rate is applied to limited goods, such as pharmaceuticals, medical equipment and certain food products. Other types of goods, work and services are exempt from VAT. Export of goods is subject to zero per cent VAT.

ii. Excise tax – applies to the production, sale, or import of certain goods (alcohol, tobacco, oil products and vehicles), usually on the basis of a fixed rate per unit, combined with a percentage of the sales price. Exported goods are generally not subject to excise taxes.

iii. Export/import – export duties are assessed on certain raw materials (e.g. oil/oil products, metals, timber, etc). Imported goods are generally subject to import customs duties (and import VAT). A variable customs clearance fee is also levied.

f. Summary

From an international tax planning perspective, tax residence in Russia could be beneficial because of the relatively low Russian individual income tax rate applicable to worldwide income and various statutory tax deductions, as well as an extensive double tax treaty network.

Russian law does not provide for wealth tax, and has low rates of individual property tax.

© 2012 Society of Trust & Estate Practitioners