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Paying Tax In Russia – A Rough Guide

For any entity, - Multi-National Corporation, Small to medium enterprise or private individual - one of the most important considerations of locating in an unfamiliar financial jurisdiction is the applicable taxation regime. If the old adage that the only certainties in life are death and taxes is true, then taxation is probably practically the most important issue.

It’s clearly impossible in a short article to cover the taxation system which exists in the Russian Federation in any great detail or with any pretence of authority. Anyone considering living, trading or otherwise accounting in Russia would wish to consult with a specialist in the field, such as First BIT whose website at http://www.1bit.com details their range of IT solutions and advice covering, amongst other areas, automated accounting and ERP in Russia. The following is, therefore, intended as merely a general overview of the principles which apply to fiscal arrangements within the Russian Federation.

The Tax Code of the Russian Federation, together with its supporting primary and secondary legislation, governs the means by which the state recovers taxation revenue from citizens and businesses. Taxation in Russia is levied on three levels: Federal, Regional and Local, methodology for which is enshrined in the Tax Code.

Federal Taxation
Covering corporate and personal taxation paid directly to the central government of the Federation, the broad areas of taxation which existed on 1 January 2012 were:
• Personal Income tax;
• Value Added Tax (VAT);
• Excise duty;
• Profits tax;
• Mineral extraction tax;
• Water tax;
• Natural resource tax; and
• State Duty.

Regional Taxation
These are payable to the government of the relevant Region or Oblast. Regional taxes include:
• Property tax;
• Gambling levies; and
• Transport tax.

Local Taxation
Local taxes, generally paid directly to the relevant municipal authority, include:
• Land tax; and
• Property tax.

As you might expect, regional and local taxation in Russia is, to some extent, applied at the discretion of the regional or local authority concerned, within the parameters detailed within the Tax Code. This results in businesses and individuals being subject to different rates of taxation in different areas of Russia. Many elements of Federal taxation are relatively fixed. VAT, for example is generally applied at 18% with certain items such as medical supplies, books and educational goods rated at 10%. However, one important consideration for businesses choosing to locate in Russia is the way in which the element of Profits Tax is levied. The maximum rate of Profit Tax specified in the Code is 20% of which 2% is paid to the Federal exchequer and 18% to the Region. However, the Regional element can be varied to as low as 13.5% at the discretion of the Region concerned.

Further discretionary taxation concessions may also be applied in designated technical-innovation special economic zones, at both a personal and corporate level, as Russia seeks to continue its development as a world class economic and trading nation. This gives considerable latitude to regions in terms of development policies designed to encourage the location of business and inward investment emphasising once again the need to engage with a local expert in taxation in Russia.

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