Russian Tax Code
Encyclopedia
The Russian Tax Code is the primary tax law for the Russian Federation. The Code was created, adopted and implemented in three 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.
(notably, the 1990 laws on personal and corporate income taxes), the 1991 law "On the framework of the tax system in the Russian Federation" and subsequent federal, regional and local laws and executive decrees; the underlying Soviet rules of accounting and business practices remained largely unchanged. Taxation in 1992–1998 was substantially decentralized: regional and local authorities were entitled to invent their own taxes, or could, on the contrary, create tax haven
s for "domestic off-shores
".
in his February, 1995 presidential address Boris Yeltsin
proposed to re-centralize and streamline the tax system through a unified Tax Code. Yeltsin declared that the Code's objective was to promote investments in manufacturing, while at the same time fully collecting taxes, and specifically demanded abolition of arbitrary tax preferences and tax evasion
. He admitted that the state had no clearly formulated approaches to important taxation problems—these had to be resolved in 1995–1996. One year later, Yeltsin reiterated the call to curtail "new techniques" of tax evasion and "regional self-financing". He stated that the forthcoming enactment of the Code was only a start, that the government-sponsored draft was incomplete and that the proposed rates were excessive.
The only tax law enacted in this period and still effective in 2008 is the individual property tax (enacted in 1991, with amendments). Individual property tax is explicitly authorized by the Code but exists as a standalone law.
presented the first official draft of Part One to the State Duma
in February 1996, four months prior to the 1996 presidential election
; Part Two was presented in April 1997. Deputy Minister of Finance Sergey Shatalov promoted the bill. After more than a year of refinements, the Duma passed the bill in the first hearing (due process requires three stages, or hearings) on July 19, 1997. In June–October the Duma accumulated over 4,500 proposed amendments to the bill, making further progress impractical. In October 1997 the Duma and Government clashed over the federal budget for 1998 fiscal year, and the Government recalled the bill to appease its adversaries. When this stage ended, the Duma refused to come back to the old bill; Yury Luzhkov, major opponent of centralized tax collection, declared that "the tax code is already dead. It stinks".
The Duma restarted the process, inviting competing drafts to be filed by January 31, 1998. By the deadline the Duma had received ten alternatives, as well as the new government version; this time sponsored by Minister of Finance Mikhail Zadornov and his deputy Mikhail Motorin. They made it clear that any alternative draft would face veto
by the President, at the same time incorporating ideas from the competing drafts. On April 16, 1998 the Duma finally chose the Government draft over the alternatives with a 312 to 18 vote.
Enactment of the Code was hastened by the imminent 1998 Russian financial crisis. Sergei Kiriyenko
, appointed Prime Minister in April 1998, included the Code in the government's crisis package. Yeltsin threatened to impose the Code by decree if the Duma failed to quickly enact it. On July 16, 1998 the Duma discarded budget-balancing proposals, but approved the third, and final, hearing on Part One; the next day it was stamped by the Federation Council
and finally signed by the President on July 31, 1998 (to become effective on January 1, 1999 with certain exclusions). It was officially published in Rossiyskaya Gazeta
on August 6. Anti-crisis actions failed, and on August 17, 1998 Russia defaulted
on its government bonds.
(enacted in August 2000, effective January 1, 2001) promulgated a flat 13 percent personal income tax rate, and replaced various social contributions with a regressive unified social tax (UST). In 2001 collection of personal income tax increased by 26 percent (adjusted for inflation
). Tax compliance improved; an estimated one third of previously untaxed jobs
were added to the tax roles, although economists cannot separate the effects of tax rates from those of general economic recovery and improved law enforcement.
A commitment to abolish sales-based taxes was reflected in the abolition of the municipal housing tax (2000) and, eventually, the road tax and retail sales tax (2003). To offset the resulting drop in municipal revenue, Putin temporarily increased corporate profit tax rates for 2001 to 35 percent (43 percent for banks); the framework of profit taxation had yet to be redefined.
In December 2001 legislators created a simplified tax system for agriculture. A string of amendments in July 2002 resulted in present-day simplified tax system for small businesses, imputed tax on retail operations, and redesigned the taxation of private and corporate motor vehicles.
On January 1, 2004 the VAT rate decreased from 20 percent to 18 percent. In 2007–2008 Putin, both as president and later as prime minister, promoted a decrease in the VAT rate to 12 percent by 2010; Putin's allies Sergey Chemezov
and Minister of Economics Elvira Nabiullina
support this proposal. Minister of Finance Alexey Kudrin opposed the change due to the need to finance the Pension Fund and the rearmament of Russian troops.
On January 1, 2005 Russia abolished the tax on advertising—the last remaining provision from the early 1990s.
The government slowly but regularly increases excise taxes on alcohol
, tobacco
, gasoline
and motor oil; the current Code provides a detailed plan for raising the rates until 2010 fiscal year.
In the wake of the 2008 Russian financial crisis, September 18, 2008, the Russian Ministry of Finance declared short-term tax changes:
VAT is the largest source of federal revenue (32 percent in 2008). VAT on imports (13 percent of federal revenue) is 18 percent (10 percent on selected foodstuffs) prior to release from the customs warehouse. VAT on domestic goods is calculated as the difference of VAT on sales (at the earliest of cash receipt or shipment of goods on credit) and input VAT on accrued costs.
VAT paid to suppliers that has not yet materialized into services or goods cannot be credited against current tax liability. VAT paid to suppliers on export sales is refunded in full if the seller receives payment for exports within 6 months of shipment. Refund of export VAT has become a major source of fraud, while law-abiding exporters have to resort to court action to get the refund.
VAT exemption extends to targeted companies in medicine, pharmaceutical industry, education, public housing and transportation; to private homes and apartments; to traditional banking and insurance
services; to sales of exclusive copyright
on software, integrated circuit
topologies
and similar high technology contracts.
VAT ineligibility is a very common charge by tax authorities. An April 2004 ruling by the Constitutional Court of Russia that increased corporate tax liabilities was revoked by Supreme Arbitrage Court in December 2004. The Federal Tax Service resolved the same case one year later.
Tax on mineral resource extraction (MRET) is the second largest source of federal revenue regulated by the Code; most of it is paid by oil
companies. Tax rates for oil (per metric ton) are set by the government; its formula refers to world market prices (same for all domestic producers) and a "depletion factor", specific to each oil field. The latter has been regularly criticized as a source of corruption and unfair competitive advantage. New oil fields in Sakha, Irkutsk Oblast
, Krasnoyarsk Krai
are exempt from MRET altogether.
Rates for other mineral resources are set in the Code as a fixed percentage of their market value (from 3.8 percent for potassium salts to 17.5 percent for gas condensate) or, in case of natural gas, at a fixed amount per unit volume. The tax is paid monthly based on physically extracted tonnage, not sales. A related but separate Water tax is paid by organizations physically extracting surface or subterranean fresh water, as well as by hydroelectric powerplants
and timber rafting
loggers.
Corporate profit tax (CPT) is the largest source of regional revenues. The rate for 2009 is 20 percent on pre-tax profits, 2 percent to the federal budget and 18 percent to regional budgets. The rate decreased from 24 percent effective in 2001–2008 in the wake of the 2008 Russian financial crisis.
Expense deductibility limitations were gradually eliminated in the years following enactment of Chapter 25, and as of August, 2008 practically all business expenses are fully deductible. The Code retains a principle statement that deductible expenses must be "economically justified and properly evidenced with documents". The tax authorities manage the specifics. Taxpayers resolve disputes through court litigation; resolutions of upper-tier Arbitrage Courts, clarifying gray areas of tax accounting, form a separate layer of tax environment that augments the Code.
Double taxation
of dividend
s is completely eliminated when a Russian shareholder owns at least 50 percent of Russian or foreign subsidiary
paying dividends (excluding foreign entities located in tax haven
jurisdictions) for at least 365 days and the investment is worth more than 500 million roubles. All other dividends received by Russian shareholders are subject to 9 percent tax.
Excise tax is levied on manufacturers of raw and refined alcohol
, alcoholic drinks stronger than 1.5 percent by volume, including beer
; gasoline
and diesel fuel, motor oils; passenger cars and motorcycles with engines in excess of 150 h.p.
; tobacco
products. The Code specifies strict licensing rules for oil refineries
and alcohol distillers. Rates increased until 2010; by 2010, excise taxes of a typical cigarette pack will reach 15–30 percent, which is less than its European counterpart. Since 2007, cigarettes have been taxed based on a percentage of manufacturers' suggested retail price
(MSRP). This approach made MSRP mandatory and quickly led to government-induced retail price fixing
.
Unified social tax (UST) combines previously separate contributions to Pension Fund, Social Security Fund and medical insurance.
UST is accrued on all employer-to-employee payments which are deductible for profit tax purposes; non-deductible payments like dividends or charity
are not subject to UST. Pensions, severance pay, and travel expenses are not taxable. The schedule is regressive: annual income up to 280,000 roubles is taxed at 26 percent; marginal rate for income above 600,000 roubles is 2 percent. Rates in agriculture and in special high technology parks are lower. Note that a significant part of mandatory contributions to Pension Fund is not included in UST.
Pension Fund deficits have caused calls to increase UST rates or switch from regressive to flat rates. A proposal for a flat UST was initiated in July 2008 by INSOR
, Dmitry Medvedev
's think tank
and further detailed in Putin's proposals made October 1, 2008.
Workplace accident insurance, enacted later, is not part of UST or the Tax Code. Each employer must contribute to group accident insurance. The rate varies between 0.2 percent and 8.5 percent, depending on the type of business. The rate for trading companies is 0.2 percent and for transportation companies 0.7 percent.
Personal income tax (PIT) is levied individually normally at 13 percent. There is no joint filing
. Employers withhold income taxes, thus the taxpayers whose only taxable income was paid by employer do not need to file a tax return—except to claim a refund for itemized deductions. The most important deductions are for home purchase (once a life), and education and medical expenses. Deductions require documentation and are subject to limitations. Tax returns are mandatory for registered entrepreneurs and professionals (lawyers, notaries
, etc.), sellers of personal assets and recipients of other income. Out of 10.4 million registered residents of Moscow, only 94 thousand filed tax 2006 returns and 105 thousand filed for 2007. State pensions and alimony
are normally not taxable, as well as bank interest (unless it exceeds the refinancing rate set by Central Bank of Russia).
Capital gains from asset sales are taxable only if the seller owned the asset for less than 3 years. A special tax rate of 35 percent applies to lottery and gambling wins and excess of bank interest received over the threshold interest computed using refinancing rate. Interest rates are usually below the threshold, making interest tax free.
Withholdings are remitted to the employer's registered region, rather than the employee's. The governments of Moscow Oblast
, Tver Oblast
and Leningrad Oblast
object to this policy. They are net exporters of suburban manpower to Moscow and Saint Petersburg. In March 2008 Moscow Oblast initiated a federal bill intended to change the system in favor of suburban territories.
Other federal taxes prescribed by the Code include a tax on animal and water wildlife, levied upon licensed hunters and fisheries, and a document tax (stamp duty
), most notably the ad valorem duty required to start civil litigation in state courts.
In 2007, the Ministry of Finance estimated that taxes will generate federal revenues as follows:
-related: property tax, vehicle tax, land tax and tax on gambling businesses. These taxes are assessed and paid in re
. Exact rates are set by regional (property, vehicles, gambling) or municipal (land) legislators within the Code's framework.
Corporate property tax, or tax on fixed assets, is assessed on year-averaged book value of fixed assets excluding land (which is subject to land tax). Radioactive waste storage facilities, space satellite
s, church property and other itemized assets are specifically exempt from taxation. The maximum rate is 2.2 percent; regional authorities can vary rates depending on types of taxpayers and assets. This provides a method to establish disguised individual preferences, which are outlawed by the Code.
Land tax is the only local tax in Russia: its rates are set by municipal authorities (excluding the federal cities
of Moscow
and Saint Petersburg
, where the rates are set by city legislators). The maximum rate is 0.3 percent on lands zoned
for agriculture, housing and dacha
s, and 1.5 percent on other lands. Forest reserves and bodies of water are exempt. Land values are periodically assessed by land registrars and kept substantially below market prices. Unlike corporate property tax, land tax is paid by individual taxpayers.
Vehicle tax is levied annually on owners of motor vehicles and trailers, ships, and aircraft. Commercial ships and aircraft operated by transportation companies, agricultural, military vehicles and ambulances are exempt. The Code establishes maximum rates tied to engine power. Rates increase steeply with increasing horsepower. For example, in 2009 fiscal year the city of Moscow
levies 700 roubles on a 100 h.p.
passenger car, 2400 roubles on 120 h.p., 12,000 roubles on 200 h.p. and 45,000 roubles on 300 h.p. Taxation does not depend on emission levels
.
Tax on gambling businesses
is paid by registered gambling outlets at a flat rate per each table, slot machine
or bookmaker
's cash desk. The Code provides both minimum and maximum rate limits (1:5 ratio), thus prohibits establishment of tax-free gambling. For example, one slot machine is taxed at 1,500–7,500 roubles a year, and one table at 25,000–125,000 roubles a year. From July 1, 2009 gambling in Russia is banned, except in four specially designated gambling areas in remote regions. Online gambling
is banned.
Imputed taxation applies to specific, typically small business, activities involving trading with general public in cash: small retail and food service outlets, hotels, repair shops, taxi companies, etc. Imputed tax, uses rates set by local authorities (per square meter of shop space, per vehicle etc.) All eligible businesses use imputed taxation. The law is also mandatory for eligible parts of larger corporations, even if they are individually insignificant. For example, a cafeteria of a large steel mill is usually considered a subject of imputed tax and the mill must account for it as a separate taxable unit (the core business remains on terms of general taxation system).
Simplified taxation system applies to small businesses with annual sales less than 60,000,000 roubles. Banks, insurers, foreign companies and certain other professions and businesses are not eligible. The average number of employees in the firm should not exceed 100 during the year and total assets should not exceed 100,000,000 roubles to be eligible. Unified tax is levied either on gross receipts at 6 percent, or on profit before income tax at 15 percent; the choice of either option, is made by the taxpayer. Simplified system prescribes a specific set of accounting rules, thus gross receipts and gross margins of eligible businesses are, usually, higher than they would be under general accounting and taxation systems.
An eligible business can elect either simplified or general taxation system at will with certain timing restrictions, which are usually once a year in December. If the business loses eligibility at any time during the year, it continues operating under simplified system until the end of the year, and then it must recalculate its tax obligations under general taxation system from the moment it became ineligible. The system does not allow taxpayers to pass prepaid input VAT to their customers; such customers who are VAT payers are unable to refund any VAT paid downstream. As a result, businesses engaged in B2B
transactions prefer general taxation.
Taxation system for agriculture (including animal farms
and fisheries
) uses a flat unified tax levied at 6 percent on gross margins, with its own unique set of accounting rules. There are no limitations on size of the business as long as at least 70 percent of its income is generated by sales of its farm produce.
VAT exemptions outlined in special frameworks apply only to VAT on domestic sales. VAT on imports is payable by all importers regardless of their tax framework. Likewise, the insurance premiums payable to Pension Fund of Russia are not considered part of UST and are payable by all employers.
Finally, a Product-sharing agreement framework applies to a very limited list of joint state-private enterprises, typically in oil extraction.
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
.
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
Corporate tax
Many countries impose corporate tax or company tax on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities treated as partnerships are generally not taxed at the...
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
Russian Customs Tariff
-External links:*...
. 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
Flat tax
A flat tax is a tax system with a constant marginal tax rate. Typically the term flat tax is applied in the context of an individual or corporate income that will be taxed at one marginal rate...
or regressive tax
Regressive tax
A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the...
rates. It is highly centralized for a federal state and relies heavily on proceeds from oil and natural gas
Energy policy of Russia
The Energy policy of Russia is contained in an Energy Strategy document, which sets out policy for the period up to 2020. In 2000 the Russian government approved the main provisions of the Russian energy strategy to 2020, and in 2003 the new Russian energy strategy was confirmed by the government...
corporations. In 2006 the tax burden on oil companies exceeded 45 percent of net sales (compared to 12 percent in construction
Construction
In the fields of architecture and civil engineering, construction is a process that consists of the building or assembling of infrastructure. Far from being a single activity, large scale construction is a feat of human multitasking...
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.
Taxation in Russia before the Code
Prior to enactment of the Code, Russian tax legislation was based on a patchwork of laws enacted in the last years of the Soviet UnionSoviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
(notably, the 1990 laws on personal and corporate income taxes), the 1991 law "On the framework of the tax system in the Russian Federation" and subsequent federal, regional and local laws and executive decrees; the underlying Soviet rules of accounting and business practices remained largely unchanged. Taxation in 1992–1998 was substantially decentralized: regional and local authorities were entitled to invent their own taxes, or could, on the contrary, create tax haven
Tax haven
A tax haven is a state or a country or territory where certain taxes are levied at a low rate or not at all while offering due process, good governance and a low corruption rate....
s for "domestic off-shores
Offshore company
The term offshore company is ambiguous. It may refer to either:# A company which is incorporated outside the jurisdiction of its primary operations regardless of whether that jurisdiction is an offshore financial centre i.e...
".
in his February, 1995 presidential address Boris Yeltsin
Boris Yeltsin
Boris Nikolayevich Yeltsin was the first President of the Russian Federation, serving from 1991 to 1999.Originally a supporter of Mikhail Gorbachev, Yeltsin emerged under the perestroika reforms as one of Gorbachev's most powerful political opponents. On 29 May 1990 he was elected the chairman of...
proposed to re-centralize and streamline the tax system through a unified Tax Code. Yeltsin declared that the Code's objective was to promote investments in manufacturing, while at the same time fully collecting taxes, and specifically demanded abolition of arbitrary tax preferences and tax evasion
Tax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...
. He admitted that the state had no clearly formulated approaches to important taxation problems—these had to be resolved in 1995–1996. One year later, Yeltsin reiterated the call to curtail "new techniques" of tax evasion and "regional self-financing". He stated that the forthcoming enactment of the Code was only a start, that the government-sponsored draft was incomplete and that the proposed rates were excessive.
The only tax law enacted in this period and still effective in 2008 is the individual property tax (enacted in 1991, with amendments). Individual property tax is explicitly authorized by the Code but exists as a standalone law.
Enactment of Part One
The Government of RussiaGovernment of Russia
The Government of the Russian Federation exercises executive power in the Russian Federation. The members of the government are the prime minister , the deputy prime ministers, and the federal ministers...
presented the first official draft of Part One to the State Duma
State Duma
The State Duma , common abbreviation: Госду́ма ) in the Russian Federation is the lower house of the Federal Assembly of Russia , the upper house being the Federation Council of Russia. The Duma headquarters is located in central Moscow, a few steps from Manege Square. Its members are referred to...
in February 1996, four months prior to the 1996 presidential election
Russian presidential election, 1996
Presidential elections were held in Russia in 1996. Incumbent Russian President Boris Yeltsin was seeking a four-year term after officially winning the 1991 presidential election. The first round was held on 16 June 1996...
; Part Two was presented in April 1997. Deputy Minister of Finance Sergey Shatalov promoted the bill. After more than a year of refinements, the Duma passed the bill in the first hearing (due process requires three stages, or hearings) on July 19, 1997. In June–October the Duma accumulated over 4,500 proposed amendments to the bill, making further progress impractical. In October 1997 the Duma and Government clashed over the federal budget for 1998 fiscal year, and the Government recalled the bill to appease its adversaries. When this stage ended, the Duma refused to come back to the old bill; Yury Luzhkov, major opponent of centralized tax collection, declared that "the tax code is already dead. It stinks".
The Duma restarted the process, inviting competing drafts to be filed by January 31, 1998. By the deadline the Duma had received ten alternatives, as well as the new government version; this time sponsored by Minister of Finance Mikhail Zadornov and his deputy Mikhail Motorin. They made it clear that any alternative draft would face veto
Veto
A veto, Latin for "I forbid", is the power of an officer of the state to unilaterally stop an official action, especially enactment of a piece of legislation...
by the President, at the same time incorporating ideas from the competing drafts. On April 16, 1998 the Duma finally chose the Government draft over the alternatives with a 312 to 18 vote.
Enactment of the Code was hastened by the imminent 1998 Russian financial crisis. Sergei Kiriyenko
Sergei Kiriyenko
Sergey Vladilenovich Kiriyenko is a Russian politician. He served as the Prime Minister of Russia from 23 March to 23 August 1998 under President Boris Yeltsin...
, appointed Prime Minister in April 1998, included the Code in the government's crisis package. Yeltsin threatened to impose the Code by decree if the Duma failed to quickly enact it. On July 16, 1998 the Duma discarded budget-balancing proposals, but approved the third, and final, hearing on Part One; the next day it was stamped by the Federation Council
Federation Council
Federation Council may refer to:* Federation Council of Russia, the upper house of the Federal Assembly of Russia* Federation Council , an organization in the fictional Star Trek universe-See also:...
and finally signed by the President on July 31, 1998 (to become effective on January 1, 1999 with certain exclusions). It was officially published in Rossiyskaya Gazeta
Rossiyskaya Gazeta
Rossiyskaya Gazeta is a Russian government daily newspaper of record which publishes the official decrees, statements and documents of state bodies...
on August 6. Anti-crisis actions failed, and on August 17, 1998 Russia defaulted
Default (finance)
In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either...
on its government bonds.
Enactment of Part Two
While Part One was instrumental in re-designing day-to-day relationships between taxpayers and the state, it did not address specific taxes; thus, in 1999–2000 taxpayers still paid multiple taxes with the old rates. Part Two, implemented under Vladimir PutinVladimir Putin
Vladimir Vladimirovich Putin served as the second President of the Russian Federation and is the current Prime Minister of Russia, as well as chairman of United Russia and Chairman of the Council of Ministers of the Union of Russia and Belarus. He became acting President on 31 December 1999, when...
(enacted in August 2000, effective January 1, 2001) promulgated a flat 13 percent personal income tax rate, and replaced various social contributions with a regressive unified social tax (UST). In 2001 collection of personal income tax increased by 26 percent (adjusted for inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
). Tax compliance improved; an estimated one third of previously untaxed jobs
Informal economy
The informal sector or informal economy as defined by governments, scholars, banks, etc. is the part of an economy that is not taxed, monitored by any form of government, or included in any gross national product , unlike the formal economy....
were added to the tax roles, although economists cannot separate the effects of tax rates from those of general economic recovery and improved law enforcement.
A commitment to abolish sales-based taxes was reflected in the abolition of the municipal housing tax (2000) and, eventually, the road tax and retail sales tax (2003). To offset the resulting drop in municipal revenue, Putin temporarily increased corporate profit tax rates for 2001 to 35 percent (43 percent for banks); the framework of profit taxation had yet to be redefined.
Major amendments and revisions
The second, and probably most important, stage of Putin's tax reforms—Chapter 25 of the Code dealing with corporate profits—was enacted in August 2001 (effective January 1, 2002). The tax rate was decreased to 24 percent for all taxpayers. Dividend taxation decreased to 6 percent (15 percent for non-residents). At the same time, the Code abolished tax breaks, broadening the tax base. Chapter 25 also instituted a special set of accounting rules for profit tax purposes; businesses could choose either to harmonize their statutory and tax accounting or maintain two sets of books. Gaps between statutory and tax accounting persisted, precluding complete harmonization.In December 2001 legislators created a simplified tax system for agriculture. A string of amendments in July 2002 resulted in present-day simplified tax system for small businesses, imputed tax on retail operations, and redesigned the taxation of private and corporate motor vehicles.
On January 1, 2004 the VAT rate decreased from 20 percent to 18 percent. In 2007–2008 Putin, both as president and later as prime minister, promoted a decrease in the VAT rate to 12 percent by 2010; Putin's allies Sergey Chemezov
Sergey Chemezov
Sergey Viktorovich Chemezov is a former KGB agent and later Russian businessman and official.In 1983–1988 he worked as an undercover KGB agent in an obscure company in Dresden, East Germany, where his neighbor was KGB officer Vladimir Putin....
and Minister of Economics Elvira Nabiullina
Elvira Nabiullina
Elvira Sakhipzadovna Nabiullina is a Russian economist who was appointed as Minister of Economic Development and Trade of Russia on September 24, 2007...
support this proposal. Minister of Finance Alexey Kudrin opposed the change due to the need to finance the Pension Fund and the rearmament of Russian troops.
On January 1, 2005 Russia abolished the tax on advertising—the last remaining provision from the early 1990s.
The government slowly but regularly increases excise taxes on alcohol
Alcohol
In chemistry, an alcohol is an organic compound in which the hydroxy functional group is bound to a carbon atom. In particular, this carbon center should be saturated, having single bonds to three other atoms....
, tobacco
Tobacco
Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...
, gasoline
Gasoline
Gasoline , or petrol , is a toxic, translucent, petroleum-derived liquid that is primarily used as a fuel in internal combustion engines. It consists mostly of organic compounds obtained by the fractional distillation of petroleum, enhanced with a variety of additives. Some gasolines also contain...
and motor oil; the current Code provides a detailed plan for raising the rates until 2010 fiscal year.
In the wake of the 2008 Russian financial crisis, September 18, 2008, the Russian Ministry of Finance declared short-term tax changes:
- The VAT rate for 2008 would remain fixed at 18 percent;
- By the end of 2008, the unified social tax should be either raised or totally redesigned to help balance social expenditures. In October 2008 the government agreed on changes to the UST mechanism and rate curve, effectively splitting the unified tax into separate payments. All wages and salaries up to 415,000 roubles (16,210 US dollars) per year are subject to a 26 percent pension contribution; income in excess of 415,000 roubles is not taxable. Adding other social contributions, the maximum marginal rate rose to 34 percent.
Federal taxes
Distinction between federal, regional and local taxes depends on the level of legislature that is entitled to establish rates for that kind of tax. Federal rates are explicitly set by the Tax Code; regional tax rates are limited by the Code but set by regional laws. Federal taxes such as the personal income tax may forwarded to regional governments; corporate profit taxes are split into federal and regional shares defined by the Code.VAT is the largest source of federal revenue (32 percent in 2008). VAT on imports (13 percent of federal revenue) is 18 percent (10 percent on selected foodstuffs) prior to release from the customs warehouse. VAT on domestic goods is calculated as the difference of VAT on sales (at the earliest of cash receipt or shipment of goods on credit) and input VAT on accrued costs.
VAT paid to suppliers that has not yet materialized into services or goods cannot be credited against current tax liability. VAT paid to suppliers on export sales is refunded in full if the seller receives payment for exports within 6 months of shipment. Refund of export VAT has become a major source of fraud, while law-abiding exporters have to resort to court action to get the refund.
VAT exemption extends to targeted companies in medicine, pharmaceutical industry, education, public housing and transportation; to private homes and apartments; to traditional banking and insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
services; to sales of exclusive copyright
Copyright
Copyright is a legal concept, enacted by most governments, giving the creator of an original work exclusive rights to it, usually for a limited time...
on software, integrated circuit
Integrated circuit
An integrated circuit or monolithic integrated circuit is an electronic circuit manufactured by the patterned diffusion of trace elements into the surface of a thin substrate of semiconductor material...
topologies
Topology (electronics)
The topology of an electronic circuit is the form taken by the network of interconnections of the circuit components. Different specific values or ratings of the components are regarded as being the same topology....
and similar high technology contracts.
VAT ineligibility is a very common charge by tax authorities. An April 2004 ruling by the Constitutional Court of Russia that increased corporate tax liabilities was revoked by Supreme Arbitrage Court in December 2004. The Federal Tax Service resolved the same case one year later.
Tax on mineral resource extraction (MRET) is the second largest source of federal revenue regulated by the Code; most of it is paid by oil
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...
companies. Tax rates for oil (per metric ton) are set by the government; its formula refers to world market prices (same for all domestic producers) and a "depletion factor", specific to each oil field. The latter has been regularly criticized as a source of corruption and unfair competitive advantage. New oil fields in Sakha, Irkutsk Oblast
Irkutsk Oblast
Irkutsk Oblast is a federal subject of Russia , located in southeastern Siberia in the basins of Angara River, Lena, and Nizhnyaya Tunguska Rivers. The administrative center is the city of Irkutsk. Population: -History:...
, Krasnoyarsk Krai
Krasnoyarsk Krai
Krasnoyarsk Krai is a federal subject of Russia . It is the second largest federal subject after the Sakha Republic, and Russia's largest krai, occupying an area of , which is 13% of the country's total territory. The administrative center of the krai is the city of Krasnoyarsk...
are exempt from MRET altogether.
Rates for other mineral resources are set in the Code as a fixed percentage of their market value (from 3.8 percent for potassium salts to 17.5 percent for gas condensate) or, in case of natural gas, at a fixed amount per unit volume. The tax is paid monthly based on physically extracted tonnage, not sales. A related but separate Water tax is paid by organizations physically extracting surface or subterranean fresh water, as well as by hydroelectric powerplants
Hydroelectricity
Hydroelectricity is the term referring to electricity generated by hydropower; the production of electrical power through the use of the gravitational force of falling or flowing water. It is the most widely used form of renewable energy...
and timber rafting
Timber rafting
Timber rafting is a log transportation method in which logs are tied together into rafts and drifted or pulled across a water body or down a flatter river. It is arguably the second cheapest method of transportation of timber, next after log driving...
loggers.
Corporate profit tax (CPT) is the largest source of regional revenues. The rate for 2009 is 20 percent on pre-tax profits, 2 percent to the federal budget and 18 percent to regional budgets. The rate decreased from 24 percent effective in 2001–2008 in the wake of the 2008 Russian financial crisis.
Expense deductibility limitations were gradually eliminated in the years following enactment of Chapter 25, and as of August, 2008 practically all business expenses are fully deductible. The Code retains a principle statement that deductible expenses must be "economically justified and properly evidenced with documents". The tax authorities manage the specifics. Taxpayers resolve disputes through court litigation; resolutions of upper-tier Arbitrage Courts, clarifying gray areas of tax accounting, form a separate layer of tax environment that augments the Code.
Double taxation
Double taxation
Double taxation is the systematic imposition of two or more taxes on the same income , asset , or financial transaction . It refers to taxation by two or more countries of the same income, asset or transaction, for example income paid by an entity of one country to a resident of a different country...
of dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s is completely eliminated when a Russian shareholder owns at least 50 percent of Russian or foreign subsidiary
Subsidiary
A subsidiary company, subsidiary, or daughter company is a company that is completely or partly owned and wholly controlled by another company that owns more than half of the subsidiary's stock. The subsidiary can be a company, corporation, or limited liability company. In some cases it is a...
paying dividends (excluding foreign entities located in tax haven
Tax haven
A tax haven is a state or a country or territory where certain taxes are levied at a low rate or not at all while offering due process, good governance and a low corruption rate....
jurisdictions) for at least 365 days and the investment is worth more than 500 million roubles. All other dividends received by Russian shareholders are subject to 9 percent tax.
Excise tax is levied on manufacturers of raw and refined alcohol
Alcohol
In chemistry, an alcohol is an organic compound in which the hydroxy functional group is bound to a carbon atom. In particular, this carbon center should be saturated, having single bonds to three other atoms....
, alcoholic drinks stronger than 1.5 percent by volume, including beer
Beer
Beer is the world's most widely consumed andprobably oldest alcoholic beverage; it is the third most popular drink overall, after water and tea. It is produced by the brewing and fermentation of sugars, mainly derived from malted cereal grains, most commonly malted barley and malted wheat...
; gasoline
Gasoline
Gasoline , or petrol , is a toxic, translucent, petroleum-derived liquid that is primarily used as a fuel in internal combustion engines. It consists mostly of organic compounds obtained by the fractional distillation of petroleum, enhanced with a variety of additives. Some gasolines also contain...
and diesel fuel, motor oils; passenger cars and motorcycles with engines in excess of 150 h.p.
Horsepower
Horsepower is the name of several units of measurement of power. The most common definitions equal between 735.5 and 750 watts.Horsepower was originally defined to compare the output of steam engines with the power of draft horses in continuous operation. The unit was widely adopted to measure the...
; tobacco
Tobacco
Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...
products. The Code specifies strict licensing rules for oil refineries
Oil refinery
An oil refinery or petroleum refinery is an industrial process plant where crude oil is processed and refined into more useful petroleum products, such as gasoline, diesel fuel, asphalt base, heating oil, kerosene, and liquefied petroleum gas...
and alcohol distillers. Rates increased until 2010; by 2010, excise taxes of a typical cigarette pack will reach 15–30 percent, which is less than its European counterpart. Since 2007, cigarettes have been taxed based on a percentage of manufacturers' suggested retail price
Suggested retail price
The manufacturer's suggested retail price , list price or recommended retail price of a product is the price which the manufacturer recommends that the retailer sell the product. The intention was to help to standardise prices among locations...
(MSRP). This approach made MSRP mandatory and quickly led to government-induced retail price fixing
Price fixing
Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand...
.
Unified social tax (UST) combines previously separate contributions to Pension Fund, Social Security Fund and medical insurance.
UST is accrued on all employer-to-employee payments which are deductible for profit tax purposes; non-deductible payments like dividends or charity
Charity (practice)
The practice of charity means the voluntary giving of help to those in need who are not related to the giver.- Etymology :The word "charity" entered the English language through the Old French word "charité" which was derived from the Latin "caritas".Originally in Latin the word caritas meant...
are not subject to UST. Pensions, severance pay, and travel expenses are not taxable. The schedule is regressive: annual income up to 280,000 roubles is taxed at 26 percent; marginal rate for income above 600,000 roubles is 2 percent. Rates in agriculture and in special high technology parks are lower. Note that a significant part of mandatory contributions to Pension Fund is not included in UST.
Pension Fund deficits have caused calls to increase UST rates or switch from regressive to flat rates. A proposal for a flat UST was initiated in July 2008 by INSOR
INSOR
INSOR , known until March 2008 as RIO Center , in a Moscow-based nonprofit think tank affiliated with current president of Russia Dmitry Medvedev, who, as of July 31, 2008, heads INSOR's board of trustees. It is the only non-government organization where Medvedev retained formal influence after...
, Dmitry Medvedev
Dmitry Medvedev
Dmitry Anatolyevich Medvedev is the third President of the Russian Federation.Born to a family of academics, Medvedev graduated from the Law Department of Leningrad State University in 1987. He defended his dissertation in 1990 and worked as a docent at his alma mater, now renamed to Saint...
's think tank
Think tank
A think tank is an organization that conducts research and engages in advocacy in areas such as social policy, political strategy, economics, military, and technology issues. Most think tanks are non-profit organizations, which some countries such as the United States and Canada provide with tax...
and further detailed in Putin's proposals made October 1, 2008.
Workplace accident insurance, enacted later, is not part of UST or the Tax Code. Each employer must contribute to group accident insurance. The rate varies between 0.2 percent and 8.5 percent, depending on the type of business. The rate for trading companies is 0.2 percent and for transportation companies 0.7 percent.
Personal income tax (PIT) is levied individually normally at 13 percent. There is no joint filing
Filing Status (federal income tax)
Filing Status is an important factor when computing taxable income under the Federal Income tax in the United States. The federal tax filing status defines the type of tax return form an individual will use. Filing status is based on marital status and family situation...
. Employers withhold income taxes, thus the taxpayers whose only taxable income was paid by employer do not need to file a tax return—except to claim a refund for itemized deductions. The most important deductions are for home purchase (once a life), and education and medical expenses. Deductions require documentation and are subject to limitations. Tax returns are mandatory for registered entrepreneurs and professionals (lawyers, notaries
Notary
A notary is a lawyer or person with legal training who is licensed by the state to perform acts in legal affairs, in particular witnessing signatures on documents...
, etc.), sellers of personal assets and recipients of other income. Out of 10.4 million registered residents of Moscow, only 94 thousand filed tax 2006 returns and 105 thousand filed for 2007. State pensions and alimony
Alimony
Alimony is a U.S. term denoting a legal obligation to provide financial support to one's spouse from the other spouse after marital separation or from the ex-spouse upon divorce...
are normally not taxable, as well as bank interest (unless it exceeds the refinancing rate set by Central Bank of Russia).
Capital gains from asset sales are taxable only if the seller owned the asset for less than 3 years. A special tax rate of 35 percent applies to lottery and gambling wins and excess of bank interest received over the threshold interest computed using refinancing rate. Interest rates are usually below the threshold, making interest tax free.
Withholdings are remitted to the employer's registered region, rather than the employee's. The governments of Moscow Oblast
Moscow Oblast
Moscow Oblast , or Podmoskovye , is a federal subject of Russia . Its area, at , is relatively small compared to other federal subjects, but it is one of the most densely populated regions in the country and, with the 2010 population of 7,092,941, is the second most populous federal subject...
, Tver Oblast
Tver Oblast
Tver Oblast is a federal subject of Russia . Its administrative center is the city of Tver. From 1935 to 1990, it was named Kalinin Oblast after Mikhail Kalinin. Population: Tver Oblast is an area of lakes, such as Seliger and Brosno...
and Leningrad Oblast
Leningrad Oblast
Leningrad Oblast is a federal subject of Russia . It was established on August 1, 1927, although it was not until 1946 that the oblast's borders had been mostly settled in their present position...
object to this policy. They are net exporters of suburban manpower to Moscow and Saint Petersburg. In March 2008 Moscow Oblast initiated a federal bill intended to change the system in favor of suburban territories.
Other federal taxes prescribed by the Code include a tax on animal and water wildlife, levied upon licensed hunters and fisheries, and a document tax (stamp duty
Stamp duty
Stamp duty is a tax that is levied on documents. Historically, this included the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions. A physical stamp had to be attached to or impressed upon the document to denote that stamp duty...
), most notably the ad valorem duty required to start civil litigation in state courts.
In 2007, the Ministry of Finance estimated that taxes will generate federal revenues as follows:
| |
||||
| Type of federal revenue | 2008 FY | 2009 FY | 2010 FY | Regulated by |
|---|---|---|---|---|
| Total revenue, billion roubles | 6,673 | 7,421 | 8,035 | |
| Oil and gas related revenue | 37% | 32% | 30% | |
| .. Tax on mineral resources | 13% | 11% | 11% | Tax Code |
| .. Export tariff | 24% | 21% | 19% | Government decrees |
| Other revenue | 63% | 68% | 70% | |
| .. VAT on domestic sales | 19% | 24% | 25% | Tax Code |
| .. VAT on imports | 13% | 13% | 14% | Tax Code |
| .. Corporate profit tax | 8% | 8% | 8% | Tax Code |
| .. Import and exports tariffs (other than oil and gas) | 8% | 8% | 8% | Government decrees |
| .. Excise taxes | 2% | 2% | 2% | Tax Code |
| .. Taxes on natural resources (other than oil and gas) | 1% | 1% | <1% | Tax Code |
| .. All other taxes (including collection of arrears) | 7% | 7% | 7% | Tax Code |
| .. Dividends and other non-tax revenue | 5% | 5% | 5% | Civil and international law |
| Total | 100% | 100% | 100% | |
| .. including revenue regulated by Tax Code | 68% | 71% | 73% | |
Regional and local taxes
All regional and local taxes in Russia are assetAsset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
-related: property tax, vehicle tax, land tax and tax on gambling businesses. These taxes are assessed and paid in re
In re
In re, Latin for "in the matter [of]", is a term with several different, but related meanings.In correspondence, the phrase in re: refers to the subject of a letter, memorandum, or electronic mail message...
. Exact rates are set by regional (property, vehicles, gambling) or municipal (land) legislators within the Code's framework.
Corporate property tax, or tax on fixed assets, is assessed on year-averaged book value of fixed assets excluding land (which is subject to land tax). Radioactive waste storage facilities, space satellite
Satellite
In the context of spaceflight, a satellite is an object which has been placed into orbit by human endeavour. Such objects are sometimes called artificial satellites to distinguish them from natural satellites such as the Moon....
s, church property and other itemized assets are specifically exempt from taxation. The maximum rate is 2.2 percent; regional authorities can vary rates depending on types of taxpayers and assets. This provides a method to establish disguised individual preferences, which are outlawed by the Code.
Land tax is the only local tax in Russia: its rates are set by municipal authorities (excluding the federal cities
Federal cities of Russia
The Russian Federation is divided into 83 federal subjects, two of which are federal cities....
of Moscow
Moscow
Moscow is the capital, the most populous city, and the most populous federal subject of Russia. The city is a major political, economic, cultural, scientific, religious, financial, educational, and transportation centre of Russia and the continent...
and Saint Petersburg
Saint Petersburg
Saint Petersburg is a city and a federal subject of Russia located on the Neva River at the head of the Gulf of Finland on the Baltic Sea...
, where the rates are set by city legislators). The maximum rate is 0.3 percent on lands zoned
Zoning
Zoning is a device of land use planning used by local governments in most developed countries. The word is derived from the practice of designating permitted uses of land based on mapped zones which separate one set of land uses from another...
for agriculture, housing and dacha
Dacha
Dacha is a Russian word for seasonal or year-round second homes often located in the exurbs of Soviet and post-Soviet cities. Cottages or shacks serving as family's main or only home are not considered dachas, although many purpose-built dachas are recently being converted for year-round residence...
s, and 1.5 percent on other lands. Forest reserves and bodies of water are exempt. Land values are periodically assessed by land registrars and kept substantially below market prices. Unlike corporate property tax, land tax is paid by individual taxpayers.
Vehicle tax is levied annually on owners of motor vehicles and trailers, ships, and aircraft. Commercial ships and aircraft operated by transportation companies, agricultural, military vehicles and ambulances are exempt. The Code establishes maximum rates tied to engine power. Rates increase steeply with increasing horsepower. For example, in 2009 fiscal year the city of Moscow
Moscow
Moscow is the capital, the most populous city, and the most populous federal subject of Russia. The city is a major political, economic, cultural, scientific, religious, financial, educational, and transportation centre of Russia and the continent...
levies 700 roubles on a 100 h.p.
Horsepower
Horsepower is the name of several units of measurement of power. The most common definitions equal between 735.5 and 750 watts.Horsepower was originally defined to compare the output of steam engines with the power of draft horses in continuous operation. The unit was widely adopted to measure the...
passenger car, 2400 roubles on 120 h.p., 12,000 roubles on 200 h.p. and 45,000 roubles on 300 h.p. Taxation does not depend on emission levels
European emission standards
European emission standards define the acceptable limits for exhaust emissions of new vehicles sold in EU member states. The emission standards are defined in a series of European Union directives staging the progressive introduction of increasingly stringent standards.Currently, emissions of...
.
Tax on gambling businesses
Gambling in Russia
Gambling in Russia is legal in only four regional subject areas, and in 2009 was made illegal in all other areas of Russia.-Public Policy Economics Perspective:Gambling has been a major policy problem for the Russian government since the early 21st century...
is paid by registered gambling outlets at a flat rate per each table, slot machine
Slot machine
A slot machine , informally fruit machine , the slots , poker machine or "pokies" or simply slot is a casino gambling machine with three or more reels which spin when a button is pushed...
or bookmaker
Bookmaker
A bookmaker, or bookie, is an organization or a person that takes bets on sporting and other events at agreed upon odds.- Range of events :...
's cash desk. The Code provides both minimum and maximum rate limits (1:5 ratio), thus prohibits establishment of tax-free gambling. For example, one slot machine is taxed at 1,500–7,500 roubles a year, and one table at 25,000–125,000 roubles a year. From July 1, 2009 gambling in Russia is banned, except in four specially designated gambling areas in remote regions. Online gambling
Online gambling
Online gambling, also known as Internet gambling and iGambling, is a general term for gambling using the Internet.-Online poker:Online poker tables commonly offer Texas hold 'em, Omaha, Seven-card stud, razz, HORSE and other game types in both tournament and ring game structures...
is banned.
Special taxation frameworks
The set of specific federal and regional corporate taxes outlined above (i.e. regular CPT, VAT, UST and property tax), which by default is mandatory for all corporate taxpayers and registered individual entrepreneurs, is known as General taxation system. Three alternative tax systems replace the above taxes with a simplified procedure:Imputed taxation applies to specific, typically small business, activities involving trading with general public in cash: small retail and food service outlets, hotels, repair shops, taxi companies, etc. Imputed tax, uses rates set by local authorities (per square meter of shop space, per vehicle etc.) All eligible businesses use imputed taxation. The law is also mandatory for eligible parts of larger corporations, even if they are individually insignificant. For example, a cafeteria of a large steel mill is usually considered a subject of imputed tax and the mill must account for it as a separate taxable unit (the core business remains on terms of general taxation system).
Simplified taxation system applies to small businesses with annual sales less than 60,000,000 roubles. Banks, insurers, foreign companies and certain other professions and businesses are not eligible. The average number of employees in the firm should not exceed 100 during the year and total assets should not exceed 100,000,000 roubles to be eligible. Unified tax is levied either on gross receipts at 6 percent, or on profit before income tax at 15 percent; the choice of either option, is made by the taxpayer. Simplified system prescribes a specific set of accounting rules, thus gross receipts and gross margins of eligible businesses are, usually, higher than they would be under general accounting and taxation systems.
An eligible business can elect either simplified or general taxation system at will with certain timing restrictions, which are usually once a year in December. If the business loses eligibility at any time during the year, it continues operating under simplified system until the end of the year, and then it must recalculate its tax obligations under general taxation system from the moment it became ineligible. The system does not allow taxpayers to pass prepaid input VAT to their customers; such customers who are VAT payers are unable to refund any VAT paid downstream. As a result, businesses engaged in B2B
Business-to-business
Business-to-business describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer...
transactions prefer general taxation.
Taxation system for agriculture (including animal farms
Animal husbandry
Animal husbandry is the agricultural practice of breeding and raising livestock.- History :Animal husbandry has been practiced for thousands of years, since the first domestication of animals....
and fisheries
Fishery
Generally, a fishery is an entity engaged in raising or harvesting fish which is determined by some authority to be a fishery. According to the FAO, a fishery is typically defined in terms of the "people involved, species or type of fish, area of water or seabed, method of fishing, class of boats,...
) uses a flat unified tax levied at 6 percent on gross margins, with its own unique set of accounting rules. There are no limitations on size of the business as long as at least 70 percent of its income is generated by sales of its farm produce.
VAT exemptions outlined in special frameworks apply only to VAT on domestic sales. VAT on imports is payable by all importers regardless of their tax framework. Likewise, the insurance premiums payable to Pension Fund of Russia are not considered part of UST and are payable by all employers.
Finally, a Product-sharing agreement framework applies to a very limited list of joint state-private enterprises, typically in oil extraction.
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
Withholding tax
Withholding tax, also called retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government. In most jurisdictions, withholding tax applies to employment income. Many jurisdictions also require...
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
Lease
A lease is a contractual arrangement calling for the lessee to pay the lessor for use of an asset. A rental agreement is a lease in which the asset is tangible property...
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
Tax treaty
Many countries have agreed with other countries in treaties to mitigate the effects of double taxation . Tax treaties may cover income taxes, inheritance taxes, value added taxes, or other taxes...
.
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
Royalties
Royalties are usage-based payments made by one party to another for the right to ongoing use of an asset, sometimes an intellectual property...
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
PricewaterhouseCoopers
PricewaterhouseCoopers is a global professional services firm headquartered in London, United Kingdom. It is the world's largest professional services firm measured by revenues and one of the "Big Four" accountancy firms....
, Procter & Gamble
Procter & Gamble
Procter & Gamble is a Fortune 500 American multinational corporation headquartered in downtown Cincinnati, Ohio and manufactures a wide range of consumer goods....
and SABMiller
SABMiller
SABMiller plc is a global brewing and bottling company headquartered in London, United Kingdom. It is the world's second-largest brewing company measured by revenues and is also a major bottler of Coca-Cola. Its brands include Grolsch, Miller Genuine Draft, Peroni Nastro Azzurro and Pilsner Urquell...
.