Skip to content

Russia

General Information

Country Name: Russian Federation
Currency: Russian Ruble (RUB)
Primary Tax Authority: Federal Tax Service (FTS)

Key Legislation

  • Constitution of Russia: Establishes the general principles for taxation, including fair treatment and equal taxation.
  • Tax Code of the Russian Federation: The primary legal framework for all taxes, split into two parts:
    • Part I: General tax rules, tax administration, and procedures.
    • Part II: Specific taxes, including income tax, VAT, and excise duties.

Fiscal Authority Allocation

Russia has a centralized tax system with certain taxes collected by regional and local governments.

Taxes Collected by Central Authorities:

  • Corporate income tax (federal share)
  • Value-added tax (VAT)
  • Excise taxes
  • Personal income tax
  • Customs duties

Taxes Collected by Regional Authorities:

  • Corporate income tax (regional share)
  • Property tax
  • Transport tax

Taxes Collected by Local Authorities:

  • Land tax
  • Property tax (individuals)

Revenue Sharing Mechanisms:

The proceeds from corporate income tax, property tax, and excise duties are shared between the federal and regional governments.

Corporate Income Tax (CIT)

  • Standard CIT Rate: 20%, split into a federal rate of 3% and a regional rate of 17%. Regional governments may reduce their rate to as low as 12.5% to attract investments.
  • Deductions: Allowable deductions include business expenses, wages, depreciation, R&D expenses, and interest (subject to thin capitalization rules).
  • Loss Carryforwards/Carrybacks: Losses may be carried forward for up to 10 years; carrybacks are not allowed.
  • Tax Incentives: Russia offers tax holidays for high-tech companies, IT firms, and certain small and medium-sized enterprises (SMEs) in special economic zones, which can reduce the CIT rate to as low as 0% for a specific period.

Value-Added Tax (VAT)

  • Standard VAT Rate: 20%
  • Reduced VAT Rates: A reduced rate of 10% applies to basic food products, medical goods, and books. Certain exports and services, such as medical care, are exempt.
  • VAT Refunds: Exporters are entitled to a VAT refund, and VAT credits are available for businesses purchasing goods or services for their operations.
  • Exemptions: Education, healthcare, cultural services, and financial services are exempt from VAT.

Personal Income Tax (PIT)

  • Flat PIT Rate: 13% for residents and 15% for annual incomes exceeding RUB 5 million. Non-residents are taxed at a flat rate of 30% on Russian-sourced income.
  • Dividend Income: Residents are taxed at 13%, while non-residents face a 15% tax on dividends.
  • Tax-Free Allowances: Standard deductions for dependents, education, and medical expenses are available. Certain social security contributions are also deductible.
  • PIT for High Earners: Income exceeding RUB 5 million annually is taxed at 15% for residents.

Additional Mandatory Contributions

Social Security Contributions:

  • Pension Fund: Employers contribute 22% on salaries up to RUB 1,917,000 annually. For earnings above this threshold, the rate drops to 10%.
  • Medical Insurance: Employers pay 5.1% of an employee’s salary.
  • Social Insurance: Employers contribute 2.9% to the social insurance fund, with additional contributions for workplace accidents.

Withholding Taxes

  • Dividends: 13% withholding tax for residents; 15% for non-residents.
  • Interest: 20% withholding tax for non-residents on interest income.
  • Royalties: 20% withholding tax on royalties paid to non-residents.
  • Service Fees: Payments for services rendered to non-residents are generally subject to a 20% withholding tax unless reduced by a tax treaty.

Transfer Pricing Rules

Transfer pricing rules apply to cross-border and domestic transactions between related parties. Russian law requires that transactions adhere to the arm’s length principle, with detailed documentation maintained. Non-compliance may lead to penalties and adjustments.

Special Tax Regimes

  • Simplified Tax System (STS): Available to small businesses with revenues below RUB 150 million. The STS rate is 6% on gross income or 15% on profits.
  • Patent Tax System: Sole entrepreneurs can apply for a patent regime with fixed tax rates depending on the type of activity.
  • Skolkovo Innovation Center: High-tech companies can qualify for a zero CIT rate, reduced social security contributions, and VAT exemptions for up to 10 years.

Other Taxes

  • Excise Taxes: Levied on goods such as alcohol, tobacco, and gasoline. The rates vary by product type and are adjusted regularly.
  • Property Tax: Imposed on the value of immovable property owned by companies and individuals. For companies, the rate is 2.2% of the cadastral value.
  • Land Tax: Regional authorities levy taxes on land ownership based on the land’s value, with rates determined locally.
  • Customs Duties: Russia imposes customs duties on imports at rates ranging from 0% to 20%.

Double Taxation Agreements (DTAs)

Russia has an extensive network of DTAs with over 80 countries, including Germany, China, and the UK, providing relief from double taxation on cross-border income and reduced withholding tax rates.

Most DTAs are currently suspended due to the sanctions following the Russian invasion of Ukraine.

Compliance and Reporting

  • Corporate Tax Filing Deadline: CIT returns must be filed annually by March 28 of the year following the tax period.
  • VAT Filing: VAT returns are filed quarterly.
  • PIT Filing: PIT returns must be submitted by April 30 of the following year for individuals with additional income beyond employment.
  • Penalties for Late Filing: Penalties include interest on unpaid taxes and fines, depending on the tax and the period of non-compliance.

Recent Developments

  • Tax on Digital Services: Russia introduced VAT on digital services provided by foreign companies, requiring them to register for VAT and charge it on services delivered to Russian consumers.
  • Higher PIT for High Earners: The Russian government recently introduced a 15% PIT rate for individuals earning more than RUB 5 million annually, as part of reforms aimed at increasing tax revenue.
  • Tax Incentives in Far East: The government continues to offer significant tax benefits for companies operating in the Russian Far East, including reduced CIT rates, lower social security contributions, and VAT exemptions.
  • Upcoming Income Tax Hikes: PIT and CIT increases are planned for 2025 as the costs of Russia’s invasion of Ukraine increase.

Subscribe to my free newsletter for regular updates on law, taxation and business worldwide.

Tags: