Doing Business in Russia 2012

Abstract

Introduction In recent years, Russia has made a number of significant changes to its tax legislation, bringing the Russian tax system closer to global standards and making the country a more aligned with OECD / G20 standards in tax legislation and administration and predictable place for doing business. Russia has significantly reworked its transfer pricing rules, introduced rules on controlled foreign companies, beneficial ownership concept and concept of tax residency based on management and control principle in line with OECD guidelines and BEPS initiative. The Government negotiated changes to a wide range of Double Tax Treaties (including ones with major European holding jurisdictions) in order to improve transparency and boost attractiveness of Russia as a jurisdiction for investments. At 20%, Russia's main profit tax rate remains one of the lowest among major economies, and the government has introduced a number of tax incentives that can reduce the rate even further. Special tax regimes have been established for specific regions and industries to encourage investment and innovation. This guide provides an up-to-date overview of Russian tax policy and legislation relevant for companies considering doing business here. Taxation In 2015, adjustments to Russia's tax legislation focused on fine-tuning earlier changes rather than introducing new concepts. In response to the current economic downturn, many amendments were made with an eye toward balancing the interests of the state with those of taxpayers. This year, the state has extended benefits for companies investing in Russia, and also expanded the range of information subject to disclosure to the tax authorities. Some notable changes to tax policy this year include: The participation exemption rule: As part of the overall trend to improve the investment climate, the participation exemption became affective and can be applied for the first time in 2016 (requires a five-year holding period). The government also extended participation exemption benefits for high-tech companies operating in Russia. New tax incentives: The Russian Government continued introducing federal tax incentives aimed at attracting investments into Far East regions, green field projects. Moreover, regional authorities continue to compete with each other introducing new property tax and profits tax benefits, therefore, many of tax and non-tax incentives could be granted at regional level. Changes to thin capitalization rules: The Russian thin capitalization rules were significantly revised and aligned with the OECD / G20 guidelines. It resulted in widening the range of lendings which will be regarded as controlled debt for thin capitalization purposes. Bona fide borrowings from independent banks and Russian affiliates were specifically removed from the list of controlled debt. Changes related to borrowings from independent banks were enacted starting from 2016, while other changes will come into effect only in 2017. New rules for applying VAT: Changes to the law on VAT expand the range of taxpayers eligible to apply the declarative VAT refund procedures and introduce temporary reduced rates for certain services.