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Russian Taxes


This material was taken from http://www.iep.doc.gov/bisnis/country/rusecon.htm on December 15, 1997.

Taxes:

Russian taxes, both in terms of the number of taxes as well as the amount taxed, are generally cited by U.S. companies as the leading challenges to doing business in the country. The Russian taxation system also lacks the transparency which would make it easy for companies to be fully informed and compliant. In addition, Russia has not adopted international accounting methodologies, which means that most foreign companies must maintain two sets of data, one each to conform with Russian and also their home-country income/tax reporting requirements. Meanwhile, the Russian government strives to increase tax revenues from businesses operating in the country, including foreign companies; success at tax collection is among the issues under evaluation in the consideration for granting Russia accession to the World Trade Organization.

The Russian government is currently working on a new tax code which aims to ease the country's multifaceted tax burden. Among other measures, it is said that the current draft of the code includes a drastic revision in the number of taxes (from more than 200 to less than 40) as well as an increase in the value added tax from its current 10% and 20% rates to 22% across the board. Progress on the four-part code, which requires approval by the full Russian parliament, is moving very slowly forward. Below is a discussion of several taxes pertinent to U.S. business activity in Russia.

The Russian corporate profit tax generally ranges between 35% and 38%. Russian President Yeltsin's Decree 2270 of December 1993 bifurcated the tax into a 13% Federation tax and a tax of up to 22% (as of March 1996) for the Russian regional authorities (up to 30% in the case of banks and insurance companies). This decision formally transformed the payment of corporate regional taxes, which had previously been set at an absolute/invariable rate, into a subject for negotiation between the particular company and the Russian regional authority where the particular business activity is being undertaken.

The decision also re-instituted a two-year federal tax holiday for small businesses (Russian authorities define as less than 200 employees) operating in certain lines of business, including the production of consumer goods and construction of residential, industrial, and public works projects. Over the last few years Russia has instituted, at least on paper, a range of tax holidays for Russian-foreign joint ventures, particularly those engaged in joint production activities.

Personal income taxes are levied on a gradual scale in Russia. The following rates, in rubles, apply at present: Up to R 5 million: 12%; between R5 and R10 million: 20%; above R10 million: 30%. A simplified personal income tax is among the measures included in Russia's draft tax code.

Russia's excess wage tax, a levy which does not exist in the U.S., has posed an extra burden upon U.S. companies operating in Russia. This tax is applied to employees which earn more than 6 times the Russian minimum wage. In mid-April 1995, this levy, which was previously only applied to registered offices (those actively involved in commercial transactions), was extended to representative offices (not involved in commercial transactions).

Import-related Taxes: As of January 1, 1996, the Value-Added Tax (VAT, previously calculated at 20% VAT plus a 3% 'special tax') has been maintained at 20% (10% for food products). Import tariffs generally run between 5 to 20%, with the mean duty ranging between 10 and 15%. Excise taxes charged on the import of "luxurious goods" can generally be found on a scale ranging from 35 to 250%. Export tariffs generally are found on a scale between 20 and 30%.

Presidential Decree 2270 of December 1993 contains a grandfather clause which provides that, if a company had previously been granted a special tax privilege that was more favorable than the conditions provided in the decree, the prior privilege will continue to be applied.

Companies may expect to pay a variety of other taxes, depending upon the geographic location, legal structure, and sector of their planned activity. Examples of additional federal taxes include: a road-usage tax, an assets tax, a tax on securities firms, and a tax on the name "Russia." Examples of supplementary regional taxes include: a tax (for industrial enterprises) on water resource utilization, a property tax, and a forest tax. Companies may also be faced with taxes levied by local administrative bodies. Examples of such taxes include: an advertising tax, an education tax, and a land tax.


Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
(814) 863-0048
huddart@psu.edu
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