Taxation in Russia
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The Russian Tax Code (russian: Налоговый кодекс Российской Федерации) is the primary tax law for the
Russian Federation Russia (, , ), or the Russian Federation, is a List of transcontinental countries, transcontinental country spanning Eastern Europe and North Asia, Northern Asia. It is the List of countries and dependencies by area, largest country in the ...

Russian Federation
. The Code was created, adopted and implemented in three stages. The first part, enacted July 31, 1998, also referred to as the ''General Part'', regulates relationships among taxpayers, tax agents, tax-collecting authorities and legislators, tax audit procedures, resolution of disputes, and enforcement of law. The second part, enacted on August 5, 2001, defines specific taxes, rates, payment schedules, and detailed procedures for tax calculations. It was significantly amended in 2001–2003 with additions like the new corporate profits tax section and the new simplified tax system for small business. The Code is subject to regular changes which are affected through federal laws. The Code is designed as a complete national system for federal, regional and local taxes but excludes customs tariffs. Rules and rates of regional and local taxation must conform to the framework established by the Code. Taxes or levies not listed explicitly by the Code or enacted in violation of its specific provisions are deemed illegal and void. The Russian tax system tends to use moderate flat or
regressive tax A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high t ...
rates. It is highly centralized for a
federal state A federation (also known as a federal state) is a political entity characterized by a union of partially self-governing provinces, states, or other regions under a central federal government (federalism Federalism is a combined or c ...
and relies heavily on proceeds from oil and natural gas corporations, who themselves are mostly state owned. In 2006 the tax burden on oil companies exceeded 45 percent of net sales (compared to 12 percent in
construction Construction is a general term meaning the art and science to form Physical object, objects, systems, or organizations,"Construction" def. 1.a. 1.b. and 1.c. ''Oxford English Dictionary'' Second Edition on CD-ROM (v. 4.0) Oxford University Pr ...

construction
and 16.5 percent in
telecommunications Telecommunication is the transmission of information by various types of technologies over wire, radio Radio is the technology of signaling and telecommunication, communicating using radio waves. Radio waves are electromagnetic waves of ...
). Rates for oil-related taxes and tariffs, unlike regular taxes, are set not by the Tax Code but by government decree. The Russian Ministry of Finance estimated that revenues regulated by the Tax Code accounted for 68 percent of federal revenue in 2008
fiscal year A fiscal year (or financial year, or sometimes budget year) is used in government accounting, which varies between countries, and for budget purposes. It is also used for financial reporting by businesses and other organizations. Laws in many ju ...
, rising to 73 percent in 2010. Ministry of Finance of Russia. Key parameters of federal budget for 2008–2010 Individuals pay an income tax (13 percent), land tax (0.3 percent of the land's cadastral plot which is calculated by a special formula) and vehicle tax (which is linked to the vehicle's engine power). Most small businesses are eligible for simplified taxation and can choose one of the following taxes: income tax (6 percent) or profits tax (15 percent) or unified agricultural tax (6 percent, farmers only) or tax on imputed income (calculated by a special formula, certain companies only). Corporate taxes for medium and large businesses include profits tax (20 percent), value added tax (20 percent), property tax (0-2 percent) and some other taxes like water tax and mineral tax.


History


Taxation in Russia before the Code

Prior to enactment of the Code, Russian tax legislation was based on a patchwork of laws enacted in the last years of the
Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a List of former transcontinental countries#Since 1700, transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, ...
(notably, the 1990 laws on personal and corporate income taxes), the 1991 law "On the framework of the tax system in the Russian Federation" and subsequent federal, regional and local laws and executive decrees; the underlying Soviet rules of
accounting Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporations. Accounting, which has been calle ...
and business practices remained largely unchanged. Taxation in 1992–1998 was substantially decentralized: regional and local authorities were entitled to invent their own taxes, or could, on the contrary, create
tax haven A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...
s for " domestic off-shores". In his February, 1995 presidential address
Boris Yeltsin Boris Nikolayevich Yeltsin ( rus, Борис Николаевич Ельцин, p=bɐˈrʲis nʲɪkɐˈla(j)ɪvʲɪtɕ ˈjelʲtsɨn, a=Ru-Boris Nikolayevich Yeltsin.ogg; 1 February 1931 – 23 April 2007) was a Soviet and Russian politician wh ...

Boris Yeltsin
proposed to re-centralize and streamline the tax system through a unified Tax Code. Yeltsin declared that the Code's objective was to promote investments in manufacturing, while at the same time fully collecting taxes, and specifically demanded abolition of arbitrary tax preferences and
tax evasion Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trust (property), trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities ...
. He admitted that the state had no clearly formulated approaches to important taxation problems—these had to be resolved in 1995–1996. One year later, Yeltsin reiterated the call to curtail "new techniques" of tax evasion and "regional self-financing". He stated that the forthcoming enactment of the Code was only a start, that the government-sponsored draft was incomplete and that the proposed rates were excessive. The only tax law enacted in this period and still effective in 2008 is the individual property tax (enacted in 1991, with amendments). Individual property tax is explicitly authorized by the Code but exists as a standalone law.


Enactment of Part One

The
Government of Russia The Government of Russia exercises executive power in the Russia, Russian Federation. The members of the government are the Prime Minister of Russia, prime minister, the Deputy Chairman of the Government, deputy prime ministers, and the federa ...
presented the first official draft of Part One to the
State Duma The State Duma (russian: Госуда́рственная ду́ма, r=Gosudárstvennaja dúma), commonly abbreviated in Russian as Gosduma ( rus, Госду́ма), is the lower house of the Federal Assembly of Russia, while the upper house ...
in February 1996, four months prior to the 1996 presidential election; Part Two was presented in April 1997. Deputy Minister of Finance Sergey Shatalov promoted the bill. After more than a year of refinements, the Duma passed the bill in the first hearing (due process requires three stages, or hearings) on July 19, 1997. In June–October the Duma accumulated over 4,500 proposed amendments to the bill, making further progress impractical. In October 1997 the Duma and Government clashed over the federal budget for 1998
fiscal year A fiscal year (or financial year, or sometimes budget year) is used in government accounting, which varies between countries, and for budget purposes. It is also used for financial reporting by businesses and other organizations. Laws in many ju ...
, and the Government recalled the bill to appease its adversaries. When this stage ended, the Duma refused to come back to the old bill; Yury Luzhkov, major opponent of centralized tax collection, declared that "the tax code is already dead. It stinks". Smith, p.31 The Duma restarted the process, inviting competing drafts to be filed by January 31, 1998. By the deadline the Duma had received ten alternatives, as well as the new government version; this time sponsored by Minister of Finance Mikhail Zadornov and his deputy Mikhail Motorin. They made it clear that any alternative draft would face
veto A veto is a legal power to unilaterally stop an official action. In the most typical case, a president (government title), president or monarch vetoes a bill (law), bill to stop it from becoming statutory law, law. In many countries, veto power ...
by the President, at the same time incorporating ideas from the competing drafts. On April 16, 1998 the Duma finally chose the Government draft over the alternatives with a 312 to 18 vote. Smith, p.31 Enactment of the Code was hastened by the imminent
1998 Russian financial crisis The Russian financial crisis (also called the ruble crisis or the Russian flu) began in Russia on 17 August 1998. It resulted in the Russian government and the Russian Central Bank devaluing the Russian rouble, ruble and sovereign default, defaul ...
.
Sergei Kiriyenko Sergey Vladilenovich Kiriyenko (''Birth name, né'' ''Izraitel''; russian: Серге́й Владиле́нович Кирие́нко; born 26 July 1962) is a Russian politician who has served as First Deputy Chief of Staff of the Presidentia ...
, appointed
Prime Minister A prime minister, premier or chief of cabinet is the head of the Cabinet (government), cabinet and the leader of the Minister (government), ministers in the Executive (government), executive branch of government, often in a parliamentary syst ...
in April 1998, included the Code in the government's anti-crisis package. Yeltsin threatened to impose the Code by
decree A decree is a law, legal proclamation, usually issued by a head of state (such as the President (government title), president of a republic or a monarch), according to certain procedures (usually established in a constitution). It has the force of ...
if the Duma failed to quickly enact it. On July 16, 1998 the State Duma discarded budget-balancing proposals, but approved the third, and final, hearing on Part One; the next day it was stamped by the Federation Council and finally
signed into law
signed into law
by the President on July 31, 1998 (to become effective on January 1, 1999 with certain exclusions). It was officially published in
Rossiyskaya Gazeta ' (russian: Российская газета, lit. Russian Gazette) is a Russian newspaper published by the Government of Russia. The daily newspaper serves as the official government gazette of the Government of the Russian Federation, publishi ...
on August 6. Anti-crisis actions failed, and on August 17, 1998 Russia defaulted on its
government bonds A government bond or sovereign bond is a form of Bond (finance), bond issued by a government to support government spending, public spending. It generally includes a commitment to pay periodic interest, called Coupon (finance), coupon payments' ...
.


Enactment of Part Two

While Part One was instrumental in re-designing day-to-day relationships between taxpayers and the state, it did not address specific taxes; thus, in 1999–2000 taxpayers still paid multiple taxes with the old rates. Part Two, implemented under
Vladimir Putin Vladimir Vladimirovich Putin; (born 7 October 1952) is a Russian politician and former intelligence officer who holds the office of president of Russia. Putin has Russia under Vladimir Putin, served continuously as president or Prime Minis ...

Vladimir Putin
(enacted in August 2000, effective January 1, 2001) promulgated a flat 13 percent personal income tax rate, and replaced various social contributions with a unified social tax (UST). In 2001 collection of personal income tax increased by 26 percent (adjusted for
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...

inflation
). Tax compliance improved; an estimated one third of previously untaxed jobs were added to the tax rolls, although economists cannot separate the effects of tax rates from those of general economic recovery and improved law enforcement. A commitment to abolish sales-based taxes was reflected in the abolition of the municipal housing tax (2000) and, eventually, the road tax and retail sales tax (2003). To offset the resulting drop in municipal revenue, Putin temporarily increased corporate profit tax rates for 2001 to 35 percent (43 percent for banks); the framework of profit taxation had yet to be redefined.


Major amendments and revisions

The second, and probably most important, stage of Putin's tax reforms—''Chapter 25'' of the Code dealing with corporate profits—was enacted in August 2001 (effective January 1, 2002). The tax rate was decreased to 24 percent for all taxpayers. Dividend taxation decreased to 6 percent (15 percent for non-residents). At the same time, the Code abolished tax breaks, broadening the tax base. Chapter 25 also instituted a special set of accounting rules for profit tax purposes; businesses could choose either to harmonize their statutory and tax accounting or maintain two sets of books. Gaps between statutory and tax accounting persisted, precluding complete harmonization. In December 2001 legislators created a simplified tax system for agriculture. A string of amendments in July 2002 resulted in present-day simplified tax system for small businesses, imputed tax on retail operations, and redesigned the taxation of private and corporate motor vehicles. On January 1, 2004 the VAT rate decreased from 20 percent to 18 percent. In 2007–2008 Putin, both as president and later as prime minister, promoted a decrease in the VAT rate to 12 percent by 2010; Putin's allies
Sergey Chemezov
Sergey Chemezov
and Minister of Economics
Elvira Nabiullina
Elvira Nabiullina
support this proposal. Minister of Finance Alexey Kudrin opposed the change due to the need to finance the
Pension Fund A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides pension, retirement income. Pension funds typically have large amounts of money to invest and are the major investors in listed a ...
and the rearmament of Russian troops. On January 1, 2005 Russia abolished the tax on advertising—the last remaining provision from the early 1990s. The government slowly but regularly increases
excise tax file:Lincoln Beer Stamp 1871.JPG, upright=1.2, 1871 U.S. Revenue stamp for 1/6 barrel of beer. Brewers would receive the stamp sheets, cut them into individual stamps, cancel them, and paste them over the Bunghole, bung of the beer barrel so when ...
es on
alcohol Alcohol most commonly refers to: * Alcohol (chemistry) In chemistry, an alcohol is a type of organic compound that carries at least one hydroxyl () functional group bound to a Saturated and unsaturated compounds, saturated carbon atom. The ...
,
tobacco Tobacco is the common name of several plants in the genus ''Nicotiana'' of the Family (biology), family Solanaceae, and the general term for any product prepared from the curing of tobacco, cured leaves of these plants. Nicotiana#Species, M ...

tobacco
,
gasoline Gasoline (; ) or petrol (; ) (see ) is a transparent, petroleum-derived flammable liquid that is used primarily as a fuel in most Spark-ignition engine, spark-ignited internal combustion engines (also known as petrol engines). It consists ...

gasoline
and motor oil; the current Code provides a detailed plan for raising the rates until 2010 fiscal year. In the wake of the 2008 Russian financial crisis, September 18, 2008, the Russian Ministry of Finance declared short-term tax changes: * The VAT rate for 2008 would remain fixed at 18 percent; * By the end of 2008, the unified social tax should be either raised or totally redesigned to help balance social expenditures. In October 2008 the government agreed on changes to the UST mechanism and rate curve, effectively splitting the ''unified'' tax into separate payments. All wages and salaries up to 415,000 roubles (16,210 US dollars) per year are subject to a 26 percent pension contribution; income in excess of 415,000 roubles is not taxable. Adding other social contributions, the maximum marginal rate rose to 34 percent. Putin's Pension Talk Scares Businesses. The Moscow Times, October 2, 200

/ref>


Federal taxes

Distinction between ''federal'', ''regional'' and ''local'' taxes depends on the level of legislature that is entitled to establish rates for that kind of tax. Federal rates are explicitly set by the Tax Code; regional tax rates are limited by the Code but set by regional laws. Federal taxes such as the personal income tax may forwarded to regional governments; corporate profit taxes are split into federal and regional shares defined by the Code. Value added tax, VAT is the largest source of federal revenue (32 percent in 2008). VAT on imports (13 percent of federal revenue) is 20 percent as of January 1, 2019 (10 percent on selected foodstuffs) prior to release from the customs warehouse. VAT on domestic goods is calculated as the difference of VAT on sales (at the earliest of cash receipt or shipment of goods on credit) and input VAT on accrued costs. VAT paid to suppliers that has not yet materialized into services or goods cannot be credited against current tax liability. VAT paid to suppliers on export sales is refunded in full if the seller receives payment for exports within 6 months of shipment. Refund of export VAT has become a major source of fraud, while law-abiding exporters have to resort to court action to get the refund. VAT exemption extends to targeted companies in medicine,
pharmaceutical industry The pharmaceutical industry discovers, develops, produces, and markets drugs or pharmaceutical drugs for use as medications to be administered to patients (or self-administered), with the aim to cure them, Vaccine, vaccinate them, or alleviate s ...
, education, public housing and transportation; to private homes and apartments; to traditional
banking A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Beca ...

banking
and
insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to Hedge ( ...

insurance
services; to sales of exclusive
copyright A copyright is a type of intellectual property that gives its owner the exclusive right to copy, distribute, adapt, display, and perform a creative work, usually for a limited time. The creative work may be in a literary, artistic, education ...

copyright
on
software Software is a set of computer programs and associated software documentation, documentation and data (computing), data. This is in contrast to Computer hardware, hardware, from which the system is built and which actually performs the work. ...

software
,
integrated circuit An integrated circuit or monolithic integrated circuit (also referred to as an IC, a chip, or a microchip) is a set of electronic circuits on one small flat piece (or "chip") of semiconductor material, usually silicon. Large numbers of ti ...

integrated circuit
topologies and similar high technology contracts. VAT ineligibility is a very common charge by tax authorities. An April 2004 ruling by the
Constitutional Court of Russia A constitution is the aggregate of fundamental principles or established precedents that constitute the legal basis of a polity, organisation or other type of Legal entity, entity and commonly determine how that entity is to be governed. When ...
that increased corporate tax liabilities was revoked by Supreme Arbitrage Court in December 2004. The Federal Tax Service resolved the same case one year later. Tax on mineral resource extraction is the second largest source of federal revenue regulated by the Code; most of it is paid by
oil An oil is any nonpolar In chemistry, polarity is a separation of electric charge leading to a molecule or its chemical groups having an electric dipole moment, with a negatively charged end and a positively charged end. Polar molecules m ...

oil
companies. Tax rates for oil (per metric ton) are set by the government; its formula refers to world market prices (same for all domestic producers) and a "depletion factor", specific to each oil field. The latter has been regularly criticized as a source of corruption and unfair competitive advantage. New oil fields in
Sakha Sakha, officially the Republic of Sakha (Yakutia),, is the Federal subjects of Russia#List, largest republics of Russia, republic of Russia, located in the Russian Far East, along the Arctic Ocean, with a population of roughly 1 million. Sak ...
,
Irkutsk Oblast Irkutsk Oblast (russian: Ирку́тская о́бласть, Irkutskaya oblast; bua, Эрхүү можо, Erkhüü mojo) is a federal subjects of Russia, federal subject of Russia (an oblast), located in southeastern Siberia in the basins of ...
,
Krasnoyarsk Krai Krasnoyarsk Krai ( rus, Красноя́рский край, r=Krasnoyarskiy kray, p=krəsnɐˈjarskʲɪj ˈkraj) is a federal subjects of Russia, federal subject of Russia (a krai), with its administrative center in the types of inhabited local ...

Krasnoyarsk Krai
are exempt from MRET altogether. Rates for other mineral resources are set in the Code as a fixed percentage of their market value (from 3.8 percent for potassium salts to 17.5 percent for gas condensate) or, in case of natural gas, at a fixed amount per unit volume. The tax is paid monthly based on physically extracted tonnage, not sales. A related but separate Water tax is paid by organizations physically extracting surface or subterranean fresh water, as well as by hydroelectric powerplants and
timber rafting Timber rafting is a method of transporting felled tree trunks by tying them together to make rafts, which are then drifted or pulled downriver, or across a lake or other body of water. It is arguably, after log driving, the second cheapest mean ...
loggers. Corporate profit tax is the largest source of regional revenues. The rate for 2009 is 20 percent on pre-tax profits, 3 percent to the federal budget and 17 percent to regional budgets. The rate decreased from 24 percent effective in 2001–2008 in the wake of the 2008 Russian financial crisis. Expense deductibility limitations were gradually eliminated in the years following enactment of ''Chapter 25'', and as of August, 2008 practically all business expenses are fully deductible. The Code retains a principal statement that deductible expenses must be "economically justified and properly evidenced with documents". The tax authorities manage the specifics. Taxpayers resolve disputes through court litigation; resolutions of upper-tier Arbitrage Courts, clarifying gray areas of tax accounting, form a separate layer of tax environment that augments the Code.
Double taxation Double taxation is the levying of tax by two or more jurisdictions on the same income (in the case of income taxes), asset (in the case of Wealth tax, capital taxes), or financial transaction (in the case of sales taxes). Double liability may be m ...
of
dividend A dividend is a distribution of Profit (accounting), profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed ...

dividend
s is completely eliminated when a Russian shareholder owns at least 50 percent of Russian or foreign
subsidiary A subsidiary, subsidiary company or daughter company is a company (law), company owned or controlled by another company, which is called the parent company or holding company. Two or more subsidiaries that either belong to the same parent company ...
paying dividends (excluding foreign entities located in
tax haven A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...
jurisdictions) for at least 365 days ''and'' the investment is worth more than 500 million roubles. All other dividends received by Russian shareholders are subject to 13 percent tax, up from 9% before 2015.
Excise tax file:Lincoln Beer Stamp 1871.JPG, upright=1.2, 1871 U.S. Revenue stamp for 1/6 barrel of beer. Brewers would receive the stamp sheets, cut them into individual stamps, cancel them, and paste them over the Bunghole, bung of the beer barrel so when ...
is levied on manufacturers of raw and refined
alcohol Alcohol most commonly refers to: * Alcohol (chemistry) In chemistry, an alcohol is a type of organic compound that carries at least one hydroxyl () functional group bound to a Saturated and unsaturated compounds, saturated carbon atom. The ...
, alcoholic drinks stronger than 1.5 percent by volume, including
beer Beer is one of the oldest and the most widely consumed type of alcoholic drink in the world, and the third most popular drink overall after water and tea. It is produced by the brewing and Fermentation (food), fermentation of starches, mainl ...

beer
;
gasoline Gasoline (; ) or petrol (; ) (see ) is a transparent, petroleum-derived flammable liquid that is used primarily as a fuel in most Spark-ignition engine, spark-ignited internal combustion engines (also known as petrol engines). It consists ...

gasoline
and
diesel fuel Diesel fuel , also called diesel oil, is any liquid fuel specifically designed for use in a diesel engine The diesel engine, named after Rudolf Diesel, is an internal combustion engine in which Combustion, ignition of the diesel fuel, f ...
, motor oils; passenger cars and
motorcycles A motorcycle (motorbike, bike, or trike (if three-wheeled)) is a two or three-wheeled motor vehicle Steering, steered by a Motorcycle handlebar, handlebar. Motorcycle design varies greatly to suit a range of different purposes: Long-distance ...

motorcycles
with engines in excess of 150 ;
tobacco Tobacco is the common name of several plants in the genus ''Nicotiana'' of the Family (biology), family Solanaceae, and the general term for any product prepared from the curing of tobacco, cured leaves of these plants. Nicotiana#Species, M ...

tobacco
products. The Code specifies strict licensing rules for oil
refineries A refinery is a production facility composed of a group of chemical engineering unit processes and unit operations refining certain materials or converting raw material into products of value. Types of refineries Different types of refineries ar ...
and alcohol
distiller Distillation, or classical distillation, is the process of separation process, separating the components or substances from a liquid mixture by using selective boiling and condensation, usually inside an apparatus known as a still. Dry distilla ...
s. Rates increased until 2010; by 2010, excise taxes of a typical cigarette pack will reach 15–30 percent, which is less than its European counterpart. Since 2007, cigarettes have been taxed based on a percentage of manufacturers'
suggested retail price The list price, also known as the manufacturer's suggested retail price (MSRP), or the recommended retail price (RRP), or the suggested retail price (SRP) of a product (business), product is the price at which its manufacturer notionally recomme ...
(MSRP). This approach made MSRP mandatory and quickly led to government-induced retail
price fixing Price fixing is an Anti-competitive practices, anticompetitive agreement between participants on the same side in a market to buy or sell a product (business), product, service, or commodity only at a fixed price, or maintain the market conditio ...
. Unified social tax is accrued on all employer-to-employee payments which are deductible for profit tax purposes; non-deductible payments like
dividends A dividend is a distribution of Profit (accounting), profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed ...
or charity are not subject to UST. Pensions, severance pay, and travel expenses are not taxable. The schedule is regressive: annual income up to 280,000 roubles is taxed at 26 percent; marginal rate for income above 600,000 roubles is 2 percent. Rates in agriculture and in special high s are lower. Note that a significant part of mandatory contributions to Pension Fund is not included in UST. Pension Fund deficits have caused calls to increase UST rates or switch from regressive to flat rates. A proposal for a flat UST was initiated in July 2008 by INSOR,
Dmitry Medvedev Dmitry Anatolyevich Medvedev ( rus, links=no, Дмитрий Анатольевич Медведев, p=ˈdmʲitrʲɪj ɐnɐˈtolʲjɪvʲɪtɕ mʲɪdˈvʲedʲɪf; born 14 September 1965) is a Russian politician who has been serving as the dep ...

Dmitry Medvedev
's
think tank A think tank, or policy institute, is a research institute that performs research and advocacy concerning topics such as social policy, political strategy, economics, military, technology, and culture. Most think tanks are non-governmental org ...
and further detailed in Putin's proposals made October 1, 2008. Workplace accident insurance, enacted later, is not part of UST or the Tax Code. Each employer must contribute to group accident insurance. The rate varies between 0.2 percent and 8.5 percent, depending on the type of business. The rate for trading companies is 0.2 percent and for transportation companies 0.7 percent.
Personal income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
is levied individually normally at 13 percent. There is no joint filing. Employers withhold income taxes, thus the taxpayers whose only taxable income was paid by employer do not need to file a tax return—except to claim a refund for itemized deductions. The most important deductions are for home purchase (once a life), and education and medical expenses. Deductions require documentation and are subject to limitations. Tax returns are mandatory for registered entrepreneurs and professionals (lawyers,
notaries A notary is a person authorised to perform acts in legal affairs, in particular witnessing signatures on documents. The form that the notarial profession takes varies with local legal systems. A notary, while a legal professional, is disti ...
, etc.), sellers of personal assets and recipients of other income. Out of 10.4 million registered residents of Moscow, only 94 thousand filed tax 2006 returns and 105 thousand filed for 2007. State pensions and
alimony Alimony, also called aliment (Scotland), maintenance (England, Ireland, Northern Ireland, Wales, Canada, New Zealand), spousal support (U.S., Canada) and spouse maintenance (Australia), is a legal obligation on a person to provide financial suppo ...
are normally not taxable, as well as bank interest (unless it exceeds the refinancing rate set by
Central Bank of Russia The Central Bank of the Russian Federation (CBR; ), Trade name, doing business as the Bank of Russia (russian: Банк России}), is the central bank of the Russia, Russian Federation. The bank was established on July 13, 1990. The predeces ...
). Capital gains from asset sales are taxable only if the seller owned the asset for less than 3 years. A special tax rate of 35 percent applies to lottery and gambling wins and excess of bank interest received over the threshold interest computed using refinancing rate. Interest rates are usually below the threshold, making interest tax free. Withholdings are remitted to the employer's registered region, rather than the employee's. The governments of
Moscow Oblast Moscow Oblast ( rus, Моско́вская о́бласть, r=Moskovskaya oblast', p=mɐˈskofskəjə ˈobləsʲtʲ), or Podmoskovye ( rus, Подмоско́вье, p=pədmɐˈskovʲjə, literally "wiktionary:под-, under Moscow"), is a fe ...
,
Tver Oblast Tver Oblast (russian: Тверска́я о́бласть, ''Tverskaya oblast'', ), from 1935 to 1990 known as Kalinin Oblast (), is a federal subjects of Russia, federal subject of Russia (an oblast). Its administrative center is the types of inh ...
and
Leningrad Oblast Leningrad Oblast ( rus, Ленинградская область, Leningradskaya oblast’, lʲɪnʲɪnˈgratskəjə ˈobləsʲtʲ, , ) is a federal subjects of Russia, federal subject of Russia (an oblast). It was established on 1 August 1927, a ...
object to this policy. They are net exporters of suburban manpower to Moscow and Saint Petersburg. In March 2008 Moscow Oblast initiated a federal bill intended to change the system in favor of suburban territories. Other federal taxes prescribed by the Code include a tax on animal and water wildlife, levied upon licensed hunters and fisheries, and a document tax (
stamp duty Stamp duty is a duty (tax), tax that is levied on single property purchases or documents (including, historically, the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions). A phy ...
), most notably the
ad valorem An ''ad valorem'' tax (Latin language, Latin for "according to value") is a tax whose amount is based on the value of a transaction or of property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-adde ...
duty required to start
civil litigation Civil law is a major branch of the law.Glanville Williams. ''Learning the Law''. Eleventh Edition. Stevens. 1982. p. 2. In common law legal systems such as England and Wales and the law of the United States, United States, the term refers to non ...
in state courts. In 2007, the Ministry of Finance estimated that taxes will generate federal revenues as follows:


Regional and local taxes

All regional and local taxes in Russia are
asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that c ...
-related:
property tax A property tax or millage rate is an ad valorem tax on the value of a property.In the OECD classification scheme, tax on property includes "taxes on immovable property or Wealth tax, net wealth, taxes on the change of ownership of property thr ...
, vehicle tax,
land tax A land value tax (LVT) is a levy on the value of land (economics), land without regard to buildings, personal property and other land improvement, improvements. It is also known as a location value tax, a point valuation tax, a site valuation ta ...
and tax on gambling businesses. These taxes are assessed and paid '' in re''. Exact rates are set by regional (property, vehicles, gambling) or municipal (land) legislators within the Code's framework. Land tax is the only ''local tax'' in Russia: its rates are set by municipal authorities (excluding the federal cities of
Moscow Moscow ( , US chiefly ; rus, links=no, Москва, r=Moskva, p=mɐskˈva, a=Москва.ogg) is the capital and largest city of Russia Russia (, , ), or the Russian Federation, is a List of transcontinental countries, transco ...
and
Saint Petersburg Saint Petersburg ( rus, links=no, Санкт-Петербург, a=Ru-Sankt Peterburg Leningrad Petrograd Piter.ogg, r=Sankt-Peterburg, p=ˈsankt pʲɪtʲɪrˈburk), formerly known as Petrograd (1914–1924) and later Leningrad (1924–1991), i ...
, where the rates are set by city legislators). The maximum rate is 0.3 percent on lands zoned for agriculture, housing and
dacha A dacha ( rus, дача, p=ˈdatɕə, a=ru-dacha.ogg) is a seasonal or year-round second home, often located in the exurbs of former Soviet Union, post-Soviet countries, including Russia. A cottage (, ') or shack serving as a family's main or onl ...
s, and 1.5 percent on other lands. Forest reserves and bodies of water are exempt. Land values are periodically assessed by land registrars and kept substantially below market prices. Unlike corporate property tax, land tax is paid by individual taxpayers. Corporate property tax, or tax on
fixed assets A fixed asset, also known as long-lived assets or property, plant and equipment (PP&E), is a term used in accounting for assets and property that may not easily be converted into cash. Fixed assets are different from current assets, such as cash ...
, is assessed on year-averaged book value of fixed assets ''excluding'' land (which is subject to land tax). Radioactive waste storage facilities, space
satellite A satellite or artificial satellite is an object intentionally placed into orbit in outer space. Except for passive satellites, most satellites have an electricity generation system for equipment on board, such as solar panels or radiois ...
s, church property and other itemized assets are specifically exempt from taxation. The maximum rate is 2.2 percent; regional authorities can vary rates depending on types of taxpayers and assets. This provides a method to establish disguised individual preferences, which are outlawed by the Code. Vehicle tax is levied annually on owners of motor vehicles and trailers, ships, and aircraft. Commercial ships and aircraft operated by transportation companies, agricultural, military vehicles and ambulances are exempt. The Code establishes maximum rates tied to engine power. Rates increase steeply with increasing horsepower. For example, in 2009 fiscal year the city of
Moscow Moscow ( , US chiefly ; rus, links=no, Москва, r=Moskva, p=mɐskˈva, a=Москва.ogg) is the capital and largest city of Russia Russia (, , ), or the Russian Federation, is a List of transcontinental countries, transco ...
levies 700 roubles on a 100 passenger car, 2400 roubles on 120 h.p., 12,000 roubles on 200 h.p. and 45,000 roubles on 300 h.p. Taxation does not depend on emission levels. Tax on gambling businesses is paid by registered gambling outlets at a flat rate per each table,
slot machine A slot machine (American English), fruit machine (British English) or poker machine (Australian English and New Zealand English) is a gambling machine that creates a game of chance for its customers. Slot machines are also known pejoratively as ...
or
bookmaker A bookmaker, bookie, or turf accountant is an organization or a person that accepts and pays off bets on sporting and other events at agreed-upon odds Odds provide a measure of the likelihood of a particular outcome. They are calculated ...
's cash desk. The Code provides both minimum and maximum rate limits (1:5 ratio), thus prohibits establishment of tax-free gambling. For example, one slot machine is taxed at 1,500–7,500 roubles a year, and one table at 25,000–125,000 roubles a year. From July 1, 2009 gambling in Russia is banned, except in four specially designated gambling areas in remote regions.
Online gambling Online gambling is any kind of gambling Gambling (also known as betting or gaming) is the wagering of something of Value (economics), value ("the stakes") on a Event (probability theory), random event with the intent of winning something els ...
is banned.


Special taxation frameworks

The set of specific federal and regional corporate taxes outlined above (i.e. regular CPT, VAT, UST and property tax), which by default is mandatory for all corporate taxpayers and registered individual entrepreneurs, is known as ''General taxation system''. Three alternative tax systems replace the above taxes with a simplified procedure: Imputed taxation applies to specific, typically small business, activities involving trading with general public in cash: small retail and food service outlets, hotels, repair shops, taxi companies, etc. Imputed tax, uses rates set by local authorities (per
square meter The square metre ( international spelling as used by the International Bureau of Weights and Measures The International Bureau of Weights and Measures (french: Bureau international des poids et mesures, BIPM) is an List of intergovernmenta ...
of shop space, per vehicle etc.) All eligible businesses use imputed taxation. The law is also mandatory for eligible parts of larger corporations, even if they are individually insignificant. For example, a cafeteria of a large steel mill is usually considered a subject of imputed tax and the mill must account for it as a separate taxable unit (the core business remains on terms of general taxation system). Simplified taxation system applies to small businesses with annual sales less than 60,000,000 rubles. Banks, insurers, foreign companies and certain other professions and businesses are not eligible. The average number of employees in the firm should not exceed 100 during the year and total assets should not exceed 100,000,000 rubles to be eligible. Unified tax is levied either on gross receipts at 6 percent, or on profit before income tax at 15 percent; the choice of either option, is made by the taxpayer. Simplified system prescribes a specific set of accounting rules, thus ''gross receipts'' and ''gross margins'' of eligible businesses are, usually, higher than they would be under general accounting and taxation systems. An eligible business can elect either simplified or general taxation system at will with certain timing restrictions, which are usually once a year in December. If the business loses eligibility at any time during the year, it continues operating under simplified system until the end of the year, and then it must recalculate its tax obligations under general taxation system from the moment it became ineligible. The system does not allow taxpayers to pass prepaid input VAT to their customers; such customers who are VAT payers are unable to refund any VAT paid downstream. As a result, businesses engaged in B2B transactions prefer general taxation. Taxation system for agriculture (including animal farms and
fisheries Fishery can mean either the Big business, enterprise of Animal husbandry#Aquaculture, raising or Fishing, harvesting fish and other aquatic life; or more commonly, the site where such enterprise takes place (wikt:AKA, a.k.a. fishing ground). Com ...
) uses a flat unified tax levied at 6 percent on gross margins, with its own unique set of accounting rules. There are no limitations on size of the business as long as at least 70 percent of its income is generated by sales of its farm produce. VAT exemptions outlined in special frameworks apply only to VAT on domestic sales. VAT on imports is payable by all importers regardless of their tax framework. Likewise, the insurance premiums payable to Pension Fund of Russia are not considered part of UST and are payable by all employers. Finally, a Product-sharing agreement framework applies to a very limited list of joint state-private enterprises, typically in oil extraction.


Taxation of foreigners and foreign investments

Foreign individuals present in Russia for 183 days in a year or more are treated as residents for tax purposes and are taxed at common 13 percent rates. If they are present in Russia for less than 183 days, they are subject to 30 percent income tax (15 percent for dividends). Wages and salaries paid to foreigners in Russia are subject to standard UST tax. Foreign tourists cannot recover VAT on purchases made in Russia. Branches of foreign legal entities are subject to general taxation. Foreign companies can elect to use either Russian or their homeland accounting systems. Cash transfers between a branch and overseas head office and back are not subject to
withholding tax Tax withholding, also known as tax retention, Pay-as-You-Go, Pay-as-You-Earn, Tax deduction at source or a ''Prélèvement à la source'', is income tax paid to the government by the payer of the income rather than by the recipient of the incom ...
and are not considered taxable income or deductible expenses. Payments to foreign companies that have no permanent establishment in Russia are subject to withholding tax at 10 percent on
lease A lease is a contractual arrangement calling for the user (referred to as the ''lessee'') to pay the owner (referred to as the Lessor (leasing), ''lessor'') for the use of an asset. Property, buildings and vehicles are common assets that are l ...
payments, 15 percent on dividends and 20 percent on all other payments other than payments for imported goods. These rates can be reduced through bilateral
tax treaties A tax treaty, also called double tax agreement (DTA) or double tax avoidance agreement (DTAA), is an agreement between two countries to avoid or mitigate double taxation. Such treaties may cover a range of taxes including income taxes, inheritance ...
. Russian subsidiaries of foreign legal entities are treated as domestic taxpayers; unlike branches of foreign companies, cash transfers between subsidiary and its parent may be subject to withholding tax; cash transfers from parent to subsidiaries may be considered taxable income. Transfers and repayments of loans do not trigger immediate tax effects. A special thin capitalization rule penalizes subsidiaries of foreign shareholders if, instead of remitting after-tax dividends, they elect to pay interest on loans from shareholders. The Code effectively forces these companies to reclassify excessive interest into non-deductible dividends. Deductibility of
royalties A royalty payment is a payment made by one party to another that owns a particular asset, for the right to ongoing use of that asset. Royalties are typically agreed upon as a percentage of gross or net revenues derived from the use of an asset o ...
and service fees remitted from Russia to foreign companies is frequently disputed by tax authorities and has been subject of high-profile cases against subsidiaries of
PricewaterhouseCoopers PricewaterhouseCoopers is an international professional services brand of firms, operating as partnerships under the PwC brand. It is the second-largest professional services network in the world and is considered one of the Big Four account ...
,
Procter & Gamble The Procter & Gamble Company (P&G) is an American multinational Final good, consumer goods corporation headquartered in Cincinnati, Cincinnati, Ohio, founded in 1837 by William Procter (industrialist), William Procter and James Gamble (industr ...
and
SABMiller SABMiller plc was a South African multinational brewing and beverage company headquartered in Woking, England England is a Countries of the United Kingdom, country that is part of the United Kingdom. It shares land borders with Wales ...
. Procter & Gamble Russia faces $27 mln tax claim // RIA Novosti, March 28, 200

/ref>


See also

* Russian Customs Tariff *
Law of the Russian Federation The primary and fundamental statement of laws in the Russia Russia (, , ), or the Russian Federation, is a List of transcontinental countries, transcontinental country spanning Eastern Europe and North Asia, Northern Asia. It is the Li ...


References

* Accounting and Taxes in Russia, current version. RUSSIA CONSULTIN
www.russia-consulting.eu
* Tax Code of the Russian Federation, current versio

* Moscow City law on vehicle tax, July 9, 2008 No. 3

* Federal law "On state regulation of organization and management of gambling and changes to related legislation", December 29, 200

* Gordon B. Smith. State-Building in Russia: The Yeltsin Legacy and the Challenge of the Future. Publisher: M. E. Sharpe, 1999. , * Doing business in Russia 2008.
PriceWaterhouseCoopers PricewaterhouseCoopers is an international professional services brand of firms, operating as partnerships under the PwC brand. It is the second-largest professional services network in the world and is considered one of the Big Four account ...
, 2008

* Project "TaxExperts" dedicated to free tax consultation

* Tax aspects for doing business in Russia. Taxman-CIS, 2010

* Tax optimization method


Notes

{{Taxation in Europe Taxation in Russia, Law of Russia Tax codes