Business Operations in Russia introduces U.S. and other investors to the tax and other considerations relevant to carrying on business operations in Russia.  In addition to describing the various forms in which it is possible to do business in Russia, this Portfolio — written by Joel M. McDonald, Industrial Investors Capital Management Limited, along with Timothy Stubbs and Evgeny V. Timofeev, both partners at Salans — identifies the most important regulations and legal provisions governing Russian business operations.  Specifically, this Portfolio examines the Law on Foreign Investment, the Law on Joint Stock Companies, the Law on Limited Liability Companies, and relevant provisions in the Civil Code.

This Portfolio analyzes in detail the application of the various Russian taxes, including the profits tax, the personal income tax, the value added tax, payroll taxes, property taxes, excise taxes, and the mineral extraction tax.

The Worksheets contain translations of various tax forms, including the profits tax declaration forms for both Russian and foreign corporations, the text of the Russia-United States tax treaty, and a list of the applicable withholding rates under all Russia's tax treaties.

Business Operations in Russia allows you to benefit from:

• A perspective that addresses the concerns of foreign investors/enterprises and their advisors looking to invest/do business or already invested/doing business in the country
• Identification of those features of the country’s system that are likely to prove most problematic to outside investors
• Emphasis on those aspects of the tax system that impact transactions and structures with a cross-border dimension
• Information and insight to enable users to anticipate the pitfalls and opportunities likely to arise in making an initial investment, carrying on operations and devising potential exit strategies
• Invaluable practice documents including tables, charts and lists
• Time-saving citations to relevant sections of tax laws, regulations, court cases, and more

This Portfolio is part of the Foreign Income Portfolios Library, a comprehensive series containing more than 100 Portfolios, which covers critical transactions and issues in international taxation. This highly-regarded resource library offers commentary on a wide range of foreign income topics including: Foreign Tax Credit, Business Operations in Italy, Business Operations in Puerto Rico, Branch ProfitsTax, Source of Income Rules, Subpart F (Controlled Foreign Corporations), Foreign Partnerships and Partners, Transfer Pricing, and more.

 

Detailed Analysis

I. Russia - The Country, its People and Economy

A. Territory, Population and Natural Resources

B. Russia and the Dissolution of the Soviet Union

C. Political System

1. Constitution

2. Executive Branch

3. Legislative Branch

4. Judicial Branch

5. Political Parties

D. Federal Structure and Regional Issues

E. International Relations

1. Russia's Position in the International Community

2. Russia, the Former Soviet Union, and the Commonwealth of Independent States

F. The Russian Economy

1. Economic Reforms

a. Price Liberalization

b. Privatization

c. Financial Stabilization

2. Establishment of the Rule of Law

3. Current Economic and Political Situation

II. Operating a Business in Russia

A. Foreign Investment Regulation

1. Law on Foreign Investment

2. Investment Protection Treaties

3. Restrictions on Foreign Investment

B. Trade Regulation

1. Legal Framework

2. Licensing and Quotas of Imports and Exports

3. Customs Payments on Imports

a. Customs Duties

b. Value Added Tax

c. Excise Taxes

d. Customs Processing Fee

e. Exemption from Customs Duties and Value Added Tax on Capital Contributions

4. Customs Payments on Exports

a. Customs Duties

b. Value Added Tax

c. Excise Taxes

d. Customs Processing Fee

5. Methods for Determination of Customs Value of Goods

6. Customs Regimes

C. Commerce Regulation

1. Antimonopoly Regulation

a. Regulation of Monopolistic Activities and Unfair Competition

b. State Control over Economic Concentration

c. Requirements for Auctions and Financial Organization's Selection

2. Securities Regulation

3. Licensing

4. Banking and Financial Services

5. Intellectual Property

a. Patents

b. Trademarks

c. Copyright

d. Infringement of Intellectual Property Rights

6. Currency and Exchange Controls

a. Overview

b. Definitions of Key Terms

(1) Russian Currency

(2) Foreign Currency

(3) Internal and External Securities

(4) Currency Valuables

(5) Residents and Nonresidents

(6) Currency Operations

c. Regulation of Currency Operations Between Residents

d. Regulation of Currency Operations of Nonresidents

e. Regulation of Currency Operations Between Residents and Nonresidents

f. Foreign Bank Accounts of Residents

g. Operations Involving External Securities

h. Import and Export of Currency Valuables, Rubles and Internal Securities

i. Repatriation of Foreign Currency

j. Penalties

D. Immigration Regulations

E. Labor Relations

1. Types of Employment Agreements

2. Governing Principle of Employment Agreements

3. Formalities of Employment Agreements

4. Labor Booklets

5. Trial Period

6. Work Time and Vacation

7. Protected Categories of Employees

8. Employee's Liability for Damages

9. Multiple Employment

10. Termination of Employment

11. Dispute Resolution

F. Bankruptcy

G. Real Property Ownership and Use

1. Ownership and Use of Buildings

2. Ownership and Use of Land

3. Registration of Title

4. Mortgages

H. Judicial System and Dispute Resolution

I. Anti-Money Laundering Law

III. Forms of Doing Business in Russia

A. Forms of Business Organization

1. Joint Stock Companies

2. Limited Liability Companies

3. Private Entrepreneurs

4. Partnerships

a. General Partnerships

b. Limited Partnerships

c. Simple Partnerships

5. Other Business Forms

B. Joint Stock Companies

1. Establishment and General Characteristics of a Joint Stock Company

a. Establishment

b. The Charter

c. Charter Capital and Shares

(1) Charter Capital

(2) Types of Shares

d. Shareholders’ Register and Ownership of Shares

e. Right-of-First-Refusal

f. Share Issuances

(1) Initial Share Issuance

(2) Subsequent Share Issuances

g. Dividends

h. Share Redemptions

i. Share Consolidation and Stock Splits

j. Bonds and Other Securities

k. Reserve Fund and Employee Stock Purchase Fund

2. Management and Operation of a Joint Stock Company

a. The General Shareholders’ Meeting

b. The Board of Directors

c. The Executive Body

d. Liability of Board Members and Executive Body

e. Special Approval of Major and Interested-Party Transactions

(1) Major Transactions

(2) Interested-Party Transactions

f. Financial Oversight and Recordkeeping

(1) Accounting and Auditing

(2) Quarterly Reports

g. Corporate Governance Code

3. Reorganization, Liquidation and Insolvency of a Joint Stock Company

a. Reorganizations

b. Voluntary Liquidation

c. Insolvency and the Risk of Forced Liquidation

C. Limited Liability Companies

1. Right of Withdrawal of Participants

2. Approval of Decisions by General Participants’ Meetings

3. Expulsion Right of Participants

4. Avoidance of Securities Regulation

5. Limited Powers of Board of Directors

6. Right-of-First-Refusal

D. Representative Offices and Branches of a Foreign Company

1. Accredited Representative Offices

a. Scope of Activities of an Accredited Representative Office

b. Establishment of an Accredited Representative Office

c. Tax Compliance

d. Recordkeeping Requirements

2. Branches

a. Scope of Activities of a Branch

b. Establishment of a Branch

c. Tax Compliance

d. Recordkeeping Requirements

IV. Overview of the Russian Tax System

A. Legal Framework

1. The Russian Constitution

2. Part One of the Tax Code

3. Part Two of the Tax Code

4. Separate Laws on Individual Taxes

5. Customs Code

6. Criminal Code and Administrative Offenses Code

7. Tax Treaties

B. Fundamental Principles of the Russian Tax System

C. Federal, Regional and Local Taxes

D. Allocations of Tax Revenues

E. Tax Administration Bodies

F. Rights of Taxpayers

G. Rights of the Tax Authorities

H. Obligations of Taxpayers

I. Obligations of the Tax Authorities

J. Advance Rulings

K. Tax Audits

1. Chamber Tax Audits

2. Field Tax Audit

L. Tax Penalties

1. Tax-law Penalties

a. Basic Requirements

b. Violations and Penalty Amounts

2. Criminal-law Penalties

a. General Principles of Tax Crimes in Russia

b. Evasion of Payment of Customs Payments

c. Evasion of Payment of Taxes or Fees by Individuals

d. Evasion of Payment of Taxes and Fees by Companies

e. Nonperformance of Obligations by Tax Agents

f. Concealment of Money or Property of Companies or Private Entrepreneurs

3. Administrative-Law Penalties

M. Late Payment Interest

N. Appealing Decisions of the Tax Authorities

1. Tax-Authorities Appeal

2. Court Appeal

3. Recovery of Legal Fees

V. Principal Taxes

Introductory Material

A. Profits Tax

B. Personal Income Tax

C. Value Added Tax

D. Payroll Taxes

E. Property Taxes

F. Excise Taxes

G. Mineral Extraction Tax

H. Other Taxes

I. Tax Exemptions

VI. Taxation of Domestic Corporations

A. What Is a Domestic Corporation

B. Profits Tax

1. Taxation of Worldwide Income

2. Financial and Tax Accounting

a. General

b. Accounting Periods

c. Accounting Methods

d. Inventories

e. Revaluations

3. Calculation of Gross Income

a. General

b. Sales Income

c. Nonsales Income

d. Gains from Sales of Property and/or Property Rights

e. Dividend Income

f. Interest Income

g. Exchange Rate Gains

h. Income from Foreign Sources

i. Securities

j. Fixed-term Financial Instruments

k. Repos

l. Exclusions from Gross Income

4. Business Expenses

a. General

b. Organizational Expenses

c. Travel Expenses

d. Representation Expenses

e. Interest

f. Royalties

g. Taxes

h. Depreciation and Amortization

i. Repairs

j. Charitable Contributions

k. Losses from Sales of Property

(1) Depreciable Property

(2) Inventory

(3) Securities

(4) Fixed-term Financial Instruments

(5) Receivables

(6) Other Property

l. Casualty Losses

m. Doubtful and Bad Debts

n. Other Reserves

o. Inventory Write-Downs

p. Rents

q. Salaries, Wages and Employee Benefits

(1) Life Insurance Premiums

(2) Pension Insurance Premiums and Pension Contributions

(3) Medical Insurance Premiums

(4) Severance Pay

r. Secondment Fees

s. Advertising

t. Training

u. Research and Development

v. Expenses on the Development of Natural Resources

w. Property Insurance Premiums

x. Exchange Rate Losses

y. Special Expense Deductibility Privileges under Tax Treaties

5. Loss Carryforwards and Carrybacks

6. Tax Credits

a. Foreign Tax Credit

b. Investment Tax Credit

7. Tax Rates

8. Assessment and Filing

9. Consolidated Returns

10. Contributions of Property to Russian Corporations

11. Distributions of Property by Russian Corporations

12. Reorganizations

a. Types of Reorganizations

b. Taxation of Reorganized Corporations and Shareholders

c. Tax Attributes

(1) Tax Liabilities, Penalties and Interest

(2) Tax Credits

(3) Cost Basis of Assets and Shares

(4) Net Operating Losses

C. Value Added Tax

1. Taxpayers

2. Taxable Transactions

a. General Rules

b. Place of Sale

(1) Sales of Goods

(2) Sales of Works or Services

c. Exempt Sales

3. Taxable Base

4. Tax Rates

5. Date of Sale of Goods, Works and Services

6. Credits

7. Invoices and Recordkeeping

8. Reporting and Payment

9. Value Added Tax Refunds

D. Unified Social Tax and Pension Insurance Contribution

1. Taxpayers

2. Tax Base

3. Tax Rates

4. Reporting and Payment

5. Other Payroll Taxes

E. Property Taxes

1. Corporate Property Tax

a. Taxpayers

b. Taxable Objects and Tax Base

c. Tax Rates

d. Reporting and Payment

2. Transport Tax

a. Taxpayers

b. Taxable Objects and Tax Base

c. Tax Rates

d. Reporting and Payment

3. Land Tax

F. Oil and Gas Taxation

1. License Regime

a. Oil

b. Natural Gas

2. Production Sharing Regime

3. Internal Offshore Zones and the Yukos Case

G. Special Tax Regimes

1. Simplified System of Taxation

2. Imputed Income Tax

3. System of Taxation for Agricultural Goods Producers (Unified Agricultural Tax)

H. Leasing and Financial Leasing

I. Tax on Gambling Business

VII. Taxation of Foreign Corporations

A. What Is a Foreign Corporation

B. Taxable Income

C. Tax Registration

D. Taxation of a Permanent Establishment

1. Definition

2. Calculation of Taxable Income

3. Tax Rates

4. Assessment and Filing

5. Consolidated Returns

E. Taxation of Income from Russian Sources

F. Value Added Tax

G. Property Taxes

H. Other Taxes

I. Cross-Border Leasing

VIII. Taxation of Partnerships

Introductory Material

A. General Partnership

B. Limited Partnership

C. Simple Partnership

IX. Taxation of Other Business Entities

A. Fiduciary Management

B. Unit Investment Funds

C. Non-State Pension Funds

X. Taxation of Individuals - Residents

A. Personal Income Tax

1. Scope of Taxation

2. Residence

3. Determination of Gross Income

4. Exemptions

a. State Benefits

b. Pensions

c. Insurance Proceeds

d. Pension Premiums

e. Medical Insurance Premiums

f. Bank Deposit Interest

g. Interest on State Securities

h. Stock Options

i. Additional Shares

j. Per Diem Allowances

k. Income Taxable Under Special Tax Regimes

l. Diplomats and Similar Personnel

m. Inherited Property and Gifts

5. Deductions

a. Standard Tax Deductions

b. Social Tax Deductions

c. Property-Related Tax Deductions

(1) Sales of Property

(2) Purchases of Homes

d. Professional Tax Deduction

6. Tax Rates

7. Calculation of Taxable Income

8. Withholding

9. Tax Credits

10. Assessment and Filing

B. Value Added Tax

C. Unified Social Tax and Pension Insurance Contribution

D. Property Taxes

1. Personal Property Tax

2. Transport Tax

3. Land Tax

E. Special Tax Regimes

1. Simplified System of Taxation

2. Imputed Income Tax

3. System of Taxation for Agricultural Goods Producers (Unified Agricultural Tax)

F. Tax on Gambling Business

XI. Taxation of Individuals - Nonresidents

A. Personal Income Tax

1. Scope of Taxation

2. Non-Residence

3. Determination of Russian-Source Income

4. Exemptions

5. Deductions

6. Tax Rate

7. Withholding

8. Assessment and Filing

9. Tax Treaties

B. Property Taxes

XII. Inheritance and Gift Tax

XIII. Inter-Company Pricing

A. Scope of the Provision

B. Mechanics of the Transfer Pricing Rule

C. Determination of Market Price

D. Application of the Transfer Pricing Rule

XIV. Special Provisions Relating to Multinational Corporations

XV. Avoidance of Double Taxation

A. Foreign Tax Credits

1. Russian Corporations

2. Russian Individuals

B. Reliefs for Non-Russian Residents

C. 1992 Russia-United States Tax Treaty

1. General

2. Scope of the 1992 Russia-United States Tax Treaty

3. Taxes Covered

4. Taxation of Business Profits

5. Relief from Double Taxation

a. United States Citizens Resident in Russia

b. United States Corporations Operating in Russia Through Permanent Establishments or Qualifying Subsidiaries

6. Taxation of Investment Income

a. Dividends

b. Interest

c. Royalties

7. Capital Gains

8. Independent Personal Services

9. Dependent Personal Services

10. Entertainers and Athletes

11. Property Tax

12. Exchange of Information

Working Papers

Table of Worksheets

Worksheet 1 Model Charter of Russian Closed Joint Stock Company

Worksheet 2 Model Charter of Russian Limited Liability Company

Worksheet 3 List of Chapters in Part Two of the Tax Code

Worksheet 4 List of Currently Applicable Taxes in Russia

Worksheet 5 Profits Tax Declaration for Russian Corporations

Worksheet 6 Profits Tax Declaration for Foreign Corporations

Worksheet 7 VAT Declaration for Russian Corporations

Worksheet 8 Personal Income Tax Return for Russian Residents

Worksheet 9 List of Double Taxation Agreements and Related Protocols Signed by Russia as of March 1, 2008

Worksheet 10 Table of Withholding Tax Rates under Russian Income and Capital Tax Treaties in Effect as of March 1, 2008

Worksheet 11 Acknowledgement for Claiming Tax Treaty Benefits

Worksheet 12 1992 Russia-United States Income and Capital Tax Treaty

Worksheet 13 List of Russian Indirect Tax Treaties As of January 1, 2005

Bibliography

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