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This material was taken from
on December 15, 1997.
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
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
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.
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
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