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Russia Legalities

The Federal law on foreign investment:

• Prohibits foreign investors from getting control, or substantial stakes in Russian strategic industries, eg in extraction and defence sector
• Specifies the conditions for foreign businesses investing in Russia cannot be worse than for Russian entities
• Protects investors against unfavourable changes in tax, customs and other legislation for up to 7 years
• Russian legislation gives foreign investors a number of advantages to provide stability and legal protection for their businesses in Russia. The main advantages include:
• Recovery of damages resulting from illegal actions, or inactivity of government authorities, local government bodies or officials of these authorities
• Protection of property from seizure, including nationalisation or requisition
• Protection from negative changes in tax and customs legislation during payback period of an investment project
• Right to an unimpeded transfer of profits, income and other monetary sums from investments

Under Russian transfer pricing law a transfer price is subject to monitoring by the tax authorities. The tax authorities monitor prices to ensure that they are established for commercial purposes and not for the reduction of the tax burden.

You must take into account the regulations in Russia’s different regions. There may be significant divergences and contradiction in legal practice adopted by authorities and commercial courts.

Russia Tax

The UK and Russia have signed adouble taxation convention.

Legislation on taxes and charges is based upon the Tax Code. TheFederal Tax Service has responsibility for tax administration.

You should hire qualified finance specialists to ensure you comply with the rules. You need to keep accounts meeting:

• International Accounting Standards ( IAS) (if required)
• Russian accounting standards, which are moving towards the IASbut still adopt a more formal approach
• Tax accounting requirements, as the Tax Code requires taxpayers to maintain separate accounts for tax purposes

Special Economic Zones ( SEZ)

There are 28 SEZ which grant certain tax, customs and other concessions to residents.

More information is available on the SEZ from the Ministry of Economic Development.

Value Added Tax ( VAT)

VAT is applied at a standard rate of 18%. A preferential VAT rate of 10% is applied to:

• Medical goods
• Books and periodicals
• Food products
• Children’s garments

There is an import VAT exemption for ‘technological equipment that has no equivalent produced in Russia’ according to a government approved list. The listed equipment generally also qualifies for a 0% rate of customs import duty.

Corporate taxes

Profits are taxed at a maximum of 20% on net income.

Payments by employers to the Russian Pension Fund, Social Insurance Fund and Medical Insurance Funds amount to 30% of total payroll.

Income tax

Personal income tax is paid at a flat rate of 13%. You are considered a Russian tax resident if you live in Russia for over half a year in 12 consecutive months.

Non-residents are also subject to personal income taxation on Russia generated income

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