Balanced Scorecard

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					Foreign investments into Russia.
      Tax consequences.
Legal basics

 Federal Law ‘On Foreign Investment in the Russian
  Federation’ (Law on Foreign Investments) from July
  9, 1999, N 160-FZ
 Civil Code (4 parts),
 Tax Code (2 parts),
 Federal Law ‘On Joint-Stock Companies’ from
  December 26, 1995, N 208-FZ,
 Federal Law ‘On Limited Liability companies’, from
  February 8, 1998, N 14-FZ,
 etc.
Main forms of commercial activities in Russia:

- Export/import of commodities or services
  without permanent presence in Russia,
- Joint activities through a partnership,
- Activities through a representative office,
- Activities through a Russian legal entity (a
Russian legal entities:

1. Commercial:
1.1. Unlimited partnership – a partnership whose members (partners) are fully
liable for its obligation,
1.2. Limited partnership – a partnership within which several partners have full
liability and at least one partner has limited liability (to the extent of such partners’
1.3. Limited Liability Company – a company in which the liability of each
participants is limited to the extent of such participant’s contribution,
1.4. Additional Liability Company – a company in which the participants are, in
addition to the extent of their contribution, equally additionally liable in
accordance with a multiple applicable to all their contributions,
1.5. Joint-Stock Company (open and closed),
1.6. Production cooperative – an association of individuals for joint production
and other economic activities based on membership or personal labor or other
1.7. Unitary enterprise – legal form reserved for state and municipal enterprises.

2. Non-commercial.
Registration of Commercial Organizations

Law ‘On State Registration of Legal Entities and Individual Entrepreneurs’
from August 8, 2001, N 129-FZ

Documents which are necessary for the registration:
- an application for state registration in the established form,
- the decision of establishing of a legal entity,
- the legal entity’s foundation documents,
- excerpt from the relevant register of legal entities of the country of the
   founder’s origin, or any other certificate proving the legal status of the
   foreign legal entity,
- receipt for payment of the state registration duty in the amount of 2 000
   rubles (approx. 55 euro).

State registration must be carried out within 5 days as of the moment of
submission of the documents to the tax body.
Registration of Commercial Organizations

Upon completion of registration a company receives:
1. Certificate of registration of the legal entity,
2. Certificate of the company’s registration as a taxpayer with the local tax
3. Information letter issued by the Territorial Body of the Federal Service of
   State Statistics on the Company’s registration therewith.
4. The legal entity’s foundation documents with stamp of tax body,
5. Excerpt from Single State Register of legal Entities.
Then by post:
6. Notice on the company’s registration as a payer of pension contributions
   with the Territorial Body of the Russian Federation Pension Fund,
7. Notice on the company’s registration as a payer of insurance premiums
   with the Territorial Body of the Russian Federation Social Insurance Fund,
8. Notice on the company’s registration as a payer of insurance premiums
   with the Territorial Body of the Russian Federation Obligatory Medical
   Insurance Fund
                   Limited Liability            Closed Stock-Joint
                   Company                      Company
Way of creation    Articles of Association      Articles of Association and
                   and Charter (if there is     Charter (if there is only one
                   only one participant –       participant – only Charter),
                   only Charter)                Registration of issuance of
                                                shares with Federal
                                                Service for Financial
Max. quantity of   50                           50
Share capital      Min. 10 000 roubles (50      Min. 10 000 roubles (50 %
                   % must be paid before        must be paid within 3
                   state registration, 50 % -   month after state
                   within one year after)       registration, 50 % within 1
                 Limited Liability          Closed Stock-Joint
                 Company                    Company
Shares (parts) Share capital is divided     Share capital is divided by
               by parts (which              shares (which considered to be
               considered to be rights)     securities)

Increasing       Registration with tax      Registration with tax authorities
share capital    authorities amendments     amendments to Charter.
                 to the Article of          Registration of issuance of
                 Association and Charter    shares with Federal Service for
                                            Financial Markets
Transfer of      Registration with tax      No need for state registration.
shares (parts)   authorities of             Writings in the register of
                 amendments to Article of   shareholders.
                 Association and Charter
                Limited Liability Company Closed Stock-Joint
Right to exit   Participant may exit at will. In    Shareholder has no right
                this case he is entitled to         to exit (he may sell his
                receive from LLC price of his       shares).
Exclusion of    Possible (by way of court trial).   Impossible
Managerial      1. General Participants             1. General Shareholders
Bodies          Meeting,                            Meeting,
                2. Board of Directors               2. Board of Directors
                (Supervisory Board),                (Supervisory Board),
                3. Executive Bodies (General        3. Executive Bodies
                Director and may be                 (General Director and
                Directorate)                        may be Directorate)
Withholding taxes

- passive income (such as dividends, interest,
  royalties), fines,
- income from sale of immovable property and shares
  related to charter capital, which consists of more than
  50 % of immovable property,
- lease income,
- freight,
- international transportation,
received by foreign legal entities from sources in
Russia is subject to profits tax withholding at source.
Tax rates

Unless lower Double Tax Treaty rates apply, the
domestic withholding rate for:
  - dividends is 15 %,
  - interest, royalties and other types of income listed
  in the tax code (except freight) is taxed at 20 %.

To enjoy Double Tax Treaty benefits, a foreign legal
entity should provide to a Russian tax agent (paying
company) a residence certificate from the tax
Some current problems

1.Royalties for trademarks with Russian origin.
An aggressive scheme of tax optimization.

2.‘Beneficial ownership’.
Conception is not determined in Russian
legislation and practice.

3.‘Thin capitalization’.
Rules have a loopholes.
Morozov Andrei
Head of Legal Department
Tel. +7 495 937 90 86 ext. 1705
Fax. +7 495 937 90 86 ext. 2431

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