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The following article is an excerpt from Awara Russian Tax Guide, the first comprehensive book offering a full overview of all Russian taxation laws and rules. Awara Russian Tax Guide provides insight into the general framework of the Russian tax laws, the Tax Code and its principles. It describes the general rules of the Tax Code Part I and each type of tax and tax regime of Tax Code Part II, among them: Profit Tax, VAT, Personal Income Tax, Property Tax, Employer’s Social Contributions. The book also covers the now so important case law and taxation principles set by court precedents.
The Provisions on corporate property tax are in chapter 30 of the Tax Code. To note that the rules concerning taxation of property of individuals are in another law, namely the Law ‘On taxation of property of individuals’ (Law N 2003-1 of 09.12.1991; see next chapter).
Corporate Property Tax is a regional tax. The regions of the Russian Federation are allowed to regulate some provisions of the tax, among them the tax rate, but within the general framework provided by the Tax Code.
Effective of January 1, 2013 there is a major change in the corporate property tax. Movable assets which have been recorded as fixed assets (in company’s accounting balance) are now excluded from the tax base. This means that the movable fixed assets which have been acquired earlier (before January 1, 2013) still remain taxable.
Exempt Assets and Taxpayers
Taxpayers of corporate property tax are Russian and foreign legal entities for the assets which fall within the scope of the law.
Certain categories of assets are exempt from corporate property tax (374.4), and certain types of assets held by certain categories of taxpayers are excluded from the scope of the tax (art. 381) such are, for example:
- Movable assets recorded as fixed assets (in company’s accounting balance) not earlier than 1 January 2013
- Land and water resources
- Vessels registered into the Russian international ship register
- Spacecraft (space objects)
- Assets which have by virtue of law been recognized as historical or cultural assets
- Assets of residents of special economic zones (for a limited period of time)
- Assets of religious organizations, which are used in their statutory activities.
- Assets of Russian nationwide organization of disabled persons (when the membership consists of no less than 80 percent of disabled people).
- Production assets of pharmaceutical companies
- Certain new investments in high-energy efficiency facilities according to a list established by the Russian Government (Decree of the Russian Government N 562 of 12.07.2011; benefit available 3 years from the registration date of the property).
Russian regions are granted some levy in granting concessions on the corporate property tax (article 372).
Objects of Taxation
According to the law the objects of taxation are different for Russian legal entities and for foreign legal entities. There is a further difference between taxation of assets of foreign firms acting through a permanent establishment and those that do not constitute a PE.
For Russian legal entities taxable assets are defined as (art. 374) movable or immovable assets that are recorded in statutory financial accounting books as fixed assets (including such fixed assets that have been transferred for temporary possession or use, joint activity etc.). But note that following the change in law reported above movable fixed assets recorded in company balance from new year 2013 are not included in the tax base.
For foreign legal entities that conduct business in Russia through a permanent establishment the taxable assets are defined as movable or immovable assets considered as fixed assets and assets received by way of concession agreements.
Those foreign legal entities that do not form permanent establishments in Russia are taxed only for immovable assets (including those received on concession agreements).
It should be noted that immovable assets include ships and aircraft in addition to real estate (whereas land is excluded from the tax base). Also to note that by law immovable assets have to be registered in state registers as detailed in relevant laws. The registration requirement should remove any doubt as to which assets are actually to be considered as immovable assets in case of a dispute with tax authorities.
According to the law land and other natural objects (such as water resources) are not the object of corporate property tax. However, there is a separate land tax and a tax on water resources.
Tax Rate, Periods and Tax Base
As the corporate property tax is a regional tax, the regions are authorized to set the tax rate within the maximum rate provided by the Tax Code, which is 2.2%. Hereby most of the regions have chosen to set the rate at the highest permissible.
The tax period is a calendar year, but taxpayers are required to make advance payments as set out in the relevant regional law.
The tax base is calculated as the asset’s average annual accounting value. In respect of foreign companies that perform business activity without forming a permanent establishment the tax base will be determined as the inventory value of their immovable assets as assessed by the agency charged to perform technical inventory.