Receiving income from a foreign company and taxation in Russia
- Sources of income from foreign companies
- Taxation of dividends
- Taxation of interest and royalties
- Taxation of transactions with foreign assets
- Compliance with international requirements
- What to do with personal income tax?
- How to avoid double taxation?
The world economy is going global. Every day more and more people and companies participate in international transactions. This means that more and more Russian citizens and companies receive income from foreign sources. In this article, it will look at what tax aspects are associated with receiving income from a foreign company in Russia, as well as what rules and requirements for taxation exist.
Sources of income from foreign companies
Income from foreign companies can come from various sources:
- Dividends – payments received from shares or participation in a foreign company.
- Interest – income from investments in bonds and other debt instruments of foreign companies.
- Piecework income – income from the sale of assets, such as real estate or securities.
- Royalties – payments for the use of intellectual property, such as patents or licenses.
- Salary under an employment contract with a non-resident or under a GPH.
- Interest on a deposit opened with a foreign bank.
- Rent from renting out real estate in another country.
- Income from trust management.
- Income from the sale of securities of foreign issuers.
- income from the sale of an apartment or other property in another country.
- Income from the provision of services to a non-resident.
Taxation of dividends
In Russia, income from dividends received from foreign companies is usually subject to personal income tax (personal income tax) in the amount of 13%. However, there are a number of international treaties on the avoidance of double taxation that can reduce the tax rate for Russian residents. It is important to take into account that compliance with the requirements of the contract may require the provision of certain documentation and notifications to the tax authorities.
Taxation of interest and royalties
Interest and royalties received from foreign companies may also be subject to personal income tax in Russia in the amount of 13%. However, attention should again be drawn to the existence of double taxation treaties that may provide for a reduced income tax rate.
Taxation of transactions with foreign assets
When selling foreign assets, such as real estate or securities, income tax may be applied, which is usually 20%. Again, compliance with the requirements of an international agreement can reduce the tax burden.
Compliance with international requirements
It is important to note that receiving income from foreign companies is not only subject to taxation in Russia, but may also be subject to the laws and requirements of other countries in which these companies are registered. In this context, compliance with international standards and taxation requirements plays an important role.
What to do with personal income tax?
If a contract is concluded between a foreign company and a Russian for the provision of paid services, then within the framework of the agreement, the contractor is obliged to provide these services, and the foreign agent is obliged to pay for them.
Thus, these incomes of an individual are considered as one of the types of income that are received for the performance of works and the provision of services under a civil contract. It is important that it is not necessary to have an IP status for this.
All relations between entities that carry out business activities are regulated by the Civil Code of the Russian Federation and other income. In particular, here are is talking about the fact that entrepreneurial activity is an independent decision of a person. It is carried out at its own risk and is always aimed at making a profit from the exploitation of property, as well as its sale or production of goods.
If the executor is a tax resident of Russia, then the object of taxation will be income received from sources in the Russian Federation, as well as abroad. Income from the performance of labor or other duties that were performed outside of Russia is taxed in accordance with the contract. The rate is 13%. The tax is calculated and paid by tax persons who are residents of the Russian Federation. The tax is charged to the inspection at the place of registration. The tax return must be submitted no later than April 30 of the year following the expired tax period. The total amount of tax is paid at the taxpayer’s place of residence no later than July 15 of the year following the expired tax period.
If the subject is registered as an individual entrepreneur, then the USN is most often applied with a rate of 6% from the total tax base. Sole proprietors on the USN do not pay personal income tax, personal property tax, UST from business income and VAT (except in cases of importation of goods through customs).
At the same time, sole proprietors pay the amounts of insurance premiums to the FIU in the form of a fixed payment. The mandatory minimum amount of a fixed payment to finance the insurance and accumulative parts of a labor pension is set at 154 rubles per month. A sole proprietor may pay contributions in a lump sum for the current calendar year in an amount equal to the annual amount of payment, or in installments during the year in amounts not less than the monthly amount of payment.
Sole proprietors on the USN can choose “income” as an object of taxation and reduce the amount of a single tax on the amount of insurance premiums for mandatory pension insurance paid for this period in accordance with the legislation of the Russian Federation, but not more than 50%. The declaration on the USN based on the results of the reporting period is submitted by taxpayers no later than 25 days from the date of the end of the corresponding quarter.
It is important to take into account that the sole proprietors on the USN keep a Book of income and expenses, in which, in chronological order, based on primary documents, all business transactions for the reporting period are reflected in a positional way.
In general, an entity can provide services to a foreign company in two ways:
- As an individual who is not registered as an individual entrepreneur. In this case, personal income tax is paid from the income received at the rate of 13% on the basis of the income declaration submitted to the tax authority at the place of permanent residence.
- As a sole proprietor. It is advisable to work according to the USN in order to slightly reduce taxation under the article “income”, which are taxed at a rate of 6%.
A single Tax Declaration is submitted quarterly and a Book of income and expenses is kept as income is received.
How to avoid double taxation?
This can happen if the subject rents an apartment in another country. However, it is important to know that it is possible to offset the amount of tax paid in another country at the appropriate rate with the tax payable in the Russian Federation at the rate of 13%. If the foreign rate is more than 13%, then in Russia it is not needed to pay anything, if less, then in Russia it is needed to pay the difference up to 13%. To prove tax relations with another country, payment documents must be submitted to the Russian Federal Tax Service.
Also, in some countries, the tax authorities may reduce the tax rate on expenses. This applies to utility bills and other expenses. However, in any case, it will not have to pay more than 13% from this type of income.
It is also needed to know that if a subject pays above 13% abroad (this can happen in countries with a high level of tax burden), then it is needed to file a 3-NDFL declaration with the Federal Tax Service of the Russian Federation, where it is important to reflect the amount of income and tax paid. It is important to put down a code on the basis of which the tax will not be charged in Russia. Otherwise, the resident will be fined 1000 rubles.
The agreements on avoidance of double taxation signed between Russia and a number of countries regulate the place and procedure for paying taxes. If the agreement has not been signed or has not yet been ratified (this situation is observed with Estonia), then the tax must be paid according to the general rules, possibly twice.
Receiving income from foreign companies is becoming more and more common in the modern world. Russian citizens and companies involved in international commercial relations should be attentive to the tax aspects related to these incomes. Compliance with international double taxation treaties and the requirements of various countries will help to avoid unnecessary tax obligations and ensure the legality of doing business abroad. In case of doubt, it is always better to turn to professionals in the field of taxation and legal consultants. VALEN specialists are ready to provide consulting support to clarify the legislation in the field of payment of income from foreign companies.
Question and answer
Yes, the Tax Code of the Russian Federation establishes sanctions for evading this duty. So, a resident will be fined 5% of the amount of unpaid tax. The penalty is charged for each full and incomplete month. The fine cannot be more than 30% of the amount and less than 1,000 rubles.
Also, for unlawful understatement of the tax base, a fine of 20% of the amount of unpaid tax or 40% may be imposed if malicious intent is proven.
There will also be a penalty in the amount of 1/300 of the Central Bank’s refinancing rate for each day of delay. The limitation period for the imposition of fines is 3 years from May 1 of the year in which it was necessary to file a 3-personal income tax Declaration.