Russian Taxes for Foreign Companies: The Essentials
A foreign company pays Russian taxes when it earns income from Russian sources, operates through a permanent establishment here or is managed from Russia. Depending on the structure, it may owe corporate income tax, VAT, or only have tax withheld by its Russian customers. The biggest risk is unplanned: a sales team or a warehouse in Moscow may create a taxable presence without any registration.
When a Foreign Company Becomes Resident
A foreign company is treated as Russian tax resident if it is resident under a double tax treaty or if its place of management is in Russia. Management is judged by where the board meets, where executives work and where key decisions are made. A resident company pays tax on worldwide income. Some foreign companies can voluntarily declare residency to secure clear status.
Profit Tax and VAT
A foreign company with a permanent establishment pays corporate income tax on profit attributable to it and registers with the tax authority. VAT applies to goods and services supplied in Russia. For electronic services sold to Russian customers, the foreign supplier registers and pays VAT itself. For other services, the Russian buyer usually acts as tax agent and withholds VAT from the payment.
Tax Withheld at Source
| Income type | Who withholds | Can a treaty reduce it |
|---|---|---|
| Dividends | Russian company paying them | Yes, with proof of residence and beneficial ownership |
| Interest | Russian borrower | Yes |
| Royalties | Russian licensee | Yes |
| Rent of Russian property | Russian tenant | Depends on treaty |
| Services performed abroad | Usually no withholding | Not relevant |
Russia has suspended key provisions of several double tax treaties with countries it lists as unfriendly. Check the current status before relying on a reduced rate.
Permanent Establishment Exposure
A permanent establishment arises from a fixed place of business through which activity is carried on, or from a dependent agent who habitually concludes contracts in the company's name. Preparatory and auxiliary activities, such as storing goods or collecting information, generally do not create one. Consequences include back taxes, interest and penalties. Review job descriptions and powers of attorney of staff working for you in Russia: the right to sign contracts on behalf of the foreign company is what tax inspectors look for first.
Pricing Between Related Companies
Transactions with a foreign related party are controlled for transfer pricing purposes when they exceed a threshold set in the Tax Code. The Russian company must notify the tax authority and hold documentation showing that prices match market conditions. Adjustments lead to additional profit tax.
Staying Compliant
- Register a branch or permanent establishment in time.
- Check that Russian partners withhold and remit tax correctly.
- Keep residence certificates and beneficial ownership confirmations for each payment year.
- Monitor changes in treaty status and currency rules.
- Respond to tax authority requests within the deadline set in the request.
Tax Advice from Attorney E. V. Petrova
Attorney E. V. Petrova analyses your Russian operations for permanent establishment risk, reviews withholding under contracts, prepares responses to tax audits and represents the company in disputes with the tax authority and in arbitrazh courts.
The main channel of communication with the lawyer is email: lawyer@lawyer-moscow.com.