Basic Corporate Taxes Paid by Tax Residents in Russia

3. Taxation of foreign legal entities carrying out entrepreneurial activities via permanent

Establishments located in the territory of Russia

Foreign companies carrying out entrepreneurial activities via permanent establishments located in the Russian territory have tax obligations equal to Russian companies: value added tax, profits tax, property tax, unified social tax and other.

Value Added Tax

The value added tax is a federal tax and is payable to the federal budget of the Russian Federation.

Taxpayers are Russian companies, foreign companies and entrepreneurs without forming a legal entity. Provided the gross income from sales of goods, work, services for three consecutive months did not exceed two million roubles, the taxpayer may be exempted from taxpayer obligations with respect to the value added tax.

Taxable shall be the sales of goods, work and services in the territory of the Russian Federation, imports to the customs territory of the Russian Federation, transfer of goods for own consumption and performance of construction and assembly work for own purposes.

The Russian Federation is regarded to be the place of performing work and providing services in case the purchaser of such work and services is registered (with tax authorities) in the territory of the Russian Federation. This rule applies to advisory, legal, accounting, advertising, marketing, engineering and data processing services.

The Tax Code specifies goods, work and services that are exempt from the value added tax.

When importing goods to the territory of the Russian Federation the value added tax is charged on the value of goods equal to the amount of contractual value of goods and customs duties.

Starting from 01.01.2006 all taxpayers are obliged to determine the tax base using accrual method, i.e. as goods, work, services are sold. The tax is charged at the rates of 0%, 10% and 18%. Exported goods, work, services are subject to VAT at the rate of 0%. Exporters have the right to refund VAT amounts they paid to their suppliers on goods, work and services that were used for the production and sale of exported products. Nevertheless, the procedure of VAT refund is extremely complicated.

Foreign companies may offset or refund the amounts of value added tax paid on goods imported to the territory of Russia or paid on goods, work or services purchased in the territory of Russia after registration with tax authorities of the Russian Federation. According to general rules the right to offset the value added tax may be exercised within three years after such right occurred.

According to the Tax Code of the Russian Federation, when calculating the value added tax due to the budget, amounts relating to the payments for goods, work and services must be taken into account. Such revenues include advance payments, other payments made for future supplies subject to the valued added tax, amounts of interest on promissory notes and bonds contributed as payment for goods, work, services, interest on a tied credit.

Generally, VAT amounts paid to suppliers of goods, work, services shall be offset if such goods, work and services were used for the operations subject to VAT. VAT amounts may also be offset in case the goods, work and services sold are subject to a VAT of 0%.