The Russian Tax Code

The Russian Tax Code is the primary tax law for the Russian Federation.

The Code was created and adopted in several stages.

The first part, enacted July 31, 1998, also referred to as the General Part, regulates relationships among taxpayers, tax agents, tax-collecting authorities and legislators, tax audit procedures, resolution of disputes, and enforcement of law.

The Russian Tax Code is the primary tax law for the Russian Federation.

The Code was created and adopted in several stages.

The first part, enacted July 31, 1998, also referred to as the General Part, regulates relationships among taxpayers, tax agents, tax-collecting authorities and legislators, tax audit procedures, resolution of disputes, and enforcement of law.

The second part, enacted on August 5, 2000, defines specific taxes, rates, payment schedules, and detailed procedures for tax calculations. It was significantly amended in 2001–2003 with additions like the new corporate profits tax section and the new simplified tax system for small business. The Code is subject to regular changes which are effected through federal laws. The Code is designed as a complete national system for federal, regional and local taxes but excludes customs tariffs. Rules and rates of regional and local taxation must conform to the framework established by the Code. Taxes or levies not listed explicitly by the Code or enacted in violation of its specific provisions are deemed illegal and void.

The Russian tax system tends to use moderate flat or regressive tax rates. It is highly centralized for a federal state and relies heavily on proceeds from oil and natural gas corporations. In 2006 the tax burden on oil companies exceeded 45 percent of net sales (compared to 12 percent in construction and 16.5 percent in telecommunications).

Rates for oil-related taxes and tariffs, unlike regular taxes, are set not by the Tax Code but by government decree. The Russian Ministry of Finance estimates that revenues regulated by the Tax Code will account for 68 percent of federal revenue in 2008 fiscal year, rising to 73 percent in 2010.

Understanding the Russian Tax Code:

• Russia has a uniform rate of tax on the income of individuals. As of 2010 tax in Russia is payable at the rate of 13% for an individual on most income. (non-residents 30%). Russian residents pay 9% on dividend income. (Deduction at source).
  Non-residents pay 15% on dividend income.
• Exemptions are granted to certain income earners.
• The standard rate of Russia corporate profit tax in 2010 is 20%.
• Companies pay 9% tax on dividend income. Under certain terms dividend income received by companies with holding of 50% or more is entitled to participation exemption.

Russia Income Tax for an Individual

• An individual is liable for tax on his income as an employee and on income as a self-employed person. Tax will be payable on income earned in Russia and overseas by an individual who meets the test of a “permanent resident” of Russia.
  A foreign resident who is employed in Russia pays tax only on income earned in Russia.
• To be considered a Russian resident, residence must be established of at least 183 days in Russia during 12 months in a calendar year.
• An employer is obligated to deduct, immediately, each month, the amount of tax and national insurance due from a salaried worker.
• A self-employed individual is obligated to make advance payments on income tax that will be offset on filing an annual report. In the case of a new business, the advance payments will be calculated on the basis of the business owner’s estimate. The advance payments will be made at least 3 times in each year.
• Certain payments are deductible from taxable income as detailed below.

Russia Corporate Tax

• The tax on company profits is made up of 2 rates:
  – Federal tax – -2%.
  – Regional tax – 18% (with a possible incentive reduction of up to 4.5%).
• The maximum profit tax is 20%.