Russia’s Main Tax and Accounting Hurdles Explained in 10 Minutes

Russia has seen economic difficulties in recent years, with sanctions and low oil prices posing real obstacles for the country [1], but there are fundamental trends at work which make it appealing for international expansion. Consumer market growth made up 80% of Russian economic growth between 2004 and 2013 [2], suggesting a shift away from an economy usually thought of as heavily reliant on resources like oil and natural gas [3]. That offers a great opportunity for businesses to grow into the Russian market. As with all international expansion, such a move requires awareness of the local tax and accounting arrangements in place in the region. Here are the key areas to look out for when considering tax and accounting in Russia.

The Different Levels of Russian Tax

Russia organises taxation at three different levels: the federal, the regional, and the local. Federal taxes cover VAT, excise duty, personal income tax, and profits tax, as well as mineral extraction tax, water tax and state duty. Regional taxes include asset taxes, gambling tax and transport tax. Local taxes cover only land tax and assets tax on individuals [4].

Financial Statements in Russia

Your business will have to prepare financial statements for the year up to the 31st of December [5]. This statements must be submitted by three months after the end of the calendar year, that is, before the 1st of April [6]. You must include balance sheet, with an additional two years as comparisons, profit and loss statements, changes in equity and cash flows (with one other year included as a comparison) and explanatory notes [7].

Russian Accounting Standards

Such financial statements fall under Russian accounting standards (RAS), which differ from International Financial Reporting Standards (IFRS) in a number of ways [8]. For example, there is no fair value concept in RAS; under RAS, assets are valued according to acquisition price less amortisation, rather than appraised value; and the value of shares shown in an investment account need not take account of the price paid for them by other companies [9,10]. There is significant divergence between the two standards, so it’s important that you use a local accountant who will be familiar with RAS.

Corporation Tax in Russia

The corporation tax rate is in principle set at 20%. However, this is split into two strands: the federal portion, which is 3%, and the regional portion, which is 17%. Regional authorities may choose to lower their portion of the tax to a minimum of 12.5% [11], so the corporation tax could be as low as 15.5% in practice.

Taxable profit for permanent establishments of foreign businesses operating in Russia is defined as the gross income received through the permanent establishment, with expenses incurred by the foreign business as a whole deducted where those expenses are the result of operating the permanent establishment; certain other forms of profit generated in Russia are also included [12].

Auditing Obligations in Russia

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