The article is presented by Viktor Savinkin, Manager, Corporate Tax, to wtsklient.hu
Starting from May 2021, foreign companies, including permanent establishments (PEs), registered in Russia are obliged to report information about their participants to Russian Tax Authorities. Below we describe the general tax registration rules and the new requirements for a foreign company’s PE in Russia more detailed. We hope that this material will be useful for all foreign legal entities carrying out business activities in Russia.
General tax registration rules
According to the Russian tax legislation a foreign legal entity that conducts business activities in Russia through a separate division (representative office, branch, construction sites and other places of business) for a period exceeding 30 days in a calendar year is required to register with the Russian Tax Authorities. If a foreign legal entity operates in more than one location, it should register separately in each of the locations that it is present in (real estate or construction site must also be registered separately).
We notice that there is also an exception from general rules. Starting from 1 January 2019 а foreign legal entity that provides services in electronic form specified in paragraph 1 of Article 174.2 of the Russian Tax Code, is subject to registration in the Russian Tax Authorities (so called “VAT registration”), if the place of sale is Russia. According to the paragraph 14 of the article 306 of the Russian Tax Code, such activity does not lead to a permanent establishment status, thus, it does not create a foreign company’s PE in Russia.
In general, foreign legal entities may be liable for taxation in the Russian Tax Authorities in the following cases:
- If they are recognized as Russian tax residents based on certain criteria;
- If their business activities create a foreign company’s PE in Russia;
- If they receive income from a source in Russia (not connected with the activities of a foreign company’s PE in Russia) that is subject to withholding tax.
The registration obligation of foreign legal entities does not depend whether the activity of the foreign legal entity is taxable or not in Russia. Thus, you need to keep in mind that if a foreign legal entity conducts business activities in Russia through a “separate division”, for a period exceeding 30 days in a calendar year, is required to register in the Russian Tax Authorities. Each case whether the activity of a foreign legal entity leads to a permanent establishment status or not should be analysed separately.
New requirements for a foreign company’s PE
According to the latest amendments to the article 23 of the Russian Tax Code (Federal Law of 20.04.2021 N 100-FZ), starting from May 2021, all foreign companies, registered in Russia (except those foreign legal entities that are registered in Russia due to rendering electronic services) are obliged to report to the Russian Tax Authorities information about the participants of this foreign company (information about its founders, beneficiaries and managers).
It is necessary to disclose information about the indirect participation (if any) of an individual or a public company if the share of their direct or indirect participation exceeds 5%. The deadline for submitting information is 28 March of each financial year. Therefore, the transitional period stipulates that for the first time, foreign companies should submit information about their participants (founders, beneficiaries and managers) not later than 28 March 2022 (as of 31 December 2021).
We also notice that before entry into force of the new reduction of the art. 23 of the Russian Tax Code, only foreign legal entities owning the real estate objects, were required to report to the Russian Tax Authorities at the location of the real estate object information about their participants founders beneficiaries and managers).
The Russian Tax Code provides for the penalty in the amount of RUB 50,000 (roughly EUR 580) in case a foreign legal entity fails to report the information about its beneficiaries, founders and managers to the Russian Tax Authorities (p. 2.1 of the art. 129.1 of the Russian Tax Code). Thus, in order to be in line with the new Russian Tax Code’s requirements we recommend to take into account these new rules and report all the information to the Russian Tax Authorities according to the deadline.