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  • Russian-sourced income of FLEs

    A foreign legal entity (FLE) that conducts business activities in Russia through a "separate division", a term which includes representative offices, branches, 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 within 30 days of the commencement of such activities.

    This is regardless of whether the activities are taxable or not. If the FLE operates in more than one location, it must register separately in each of the locations that it is present in. Each real estate project or construction site must also be registered separately. Although the taxation of a separate division of an FLE is similar to the taxation of a Russian legal entity, there are a number of differences that can make this an attractive form of doing business in Russia.

    In general, FLEs may be liable for taxation in Russia in the following cases:

    If they are recognized as Russian tax residents based on certain criteria

    If their business activities create a permanent establishment (PE) in Russia

    • If they receive income from a source in Russia (not connected with the activities of a PE) that is subject to withholding tax as described in the chapter entitled "Russian-sourced income of foreign companies"



    Russian-sourced income of FLEs

    An FLE — non-Russian tax resident receiving income from a source in Russia not connected with the activities of a PE is subject to withholding tax as described in the chapter entitled "Russian-sourced income of foreign companies". "Passive" income, such as dividends, interest and royalties, are the most common types of Russian-sourced non-business income. FLE whose activities do not constitute a PE pays property tax only on its immovable property located in Russia.

    Thus, an FLE owning movable property located in Russia that is not attributable to a PE of the FLE in Russia is not liable to corporate property tax on that movable property. It should be noted that there are some differences in the taxation of immovable property depending on whether it is owned by a foreign legal entity or a Russian legal entity.

    The immovable property tax base of an FLE without a PE in Russia, or which does not relate to the PE of an FLE in Russia, is determined based on the inventory value of the property (as determined by the relevant state body) rather than the average annual value. The tax base for the year is the inventory value as of 1 January, with quarterly advance tax payments based on one-quarter of the inventory value multiplied by the applicable tax rate.

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