Taxation of Foreigners and Foreign Investments
Foreign individuals present in Russia for 183 days in a year or more are treated as residents for tax purposes and are taxed at common 13 percent rates (9 percent for dividends). If they are present in Russia for less than 183 days, they are subject to 30 percent income tax (15 percent for dividends). Wages and salaries paid to foreigners in Russia are subject to standard UST tax.
Foreign tourists cannot recover VAT on purchases made in Russia.
Branches of foreign legal entities are subject to general taxation. Foreign companies can elect to use either Russian or their homeland accounting systems. Cash transfers between a branch and overseas head office and back are not subject to withholding tax and are not considered taxable income or deductible expenses.
Payments to foreign companies that have no permanent establishment in Russia are subject to withholding tax at 10 percent on lease payments, 15 percent on dividends and 20 percent on all other payments other than payments for imported goods. These rates can be reduced through bilateral tax treaties.
Russian subsidiaries of foreign legal entities are treated as domestic taxpayers; unlike branches of foreign companies, cash transfers between subsidiary and its parent may be subject to withholding tax; cash transfers from parent to subsidiaries may be considered taxable income. Transfers and repayments of loans do not trigger immediate tax effects. A special thin capitalization rule penalizes subsidiaries of foreign shareholders if, instead of remitting after-tax dividends, they elect to pay interest on loans from shareholders. The Code effectively forces these companies to reclassify excessive interest into non-deductible dividends. Deductibility of royalties and service fees remitted from Russia to foreign companies is frequently disputed by tax authorities and has been subject of high profile cases against subsidiaries of PricewaterhouseCoopers, Procter & Gamble and SABMiller.
Read more about this topic: Russian Tax Code
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