Learn the general rules of withholding tax in Russia
Under the general provisions of the RTC, income earned by an FLE and not attributed to a PE in Russia is subject to WHT in Russia (to be withheld at source). WHT rates are as follows:
Taxation of margins (rather than gross income received from the types of sales listed above) may be applied only if expenses are properly documented.
Income of foreign organisations (not performing activities in Russia through a PE) from the sale of certain listed securities of Russian entities (and their derivatives) is not regarded as income derived from sources in Russia subject to WHT.
The list of exempt income (not subject to WHT) also includes: (i) interest payments on Russian government securities; (ii) interest payments on tradable bonds, issued in accordance with the laws of foreign countries; and (iii) payments made by Russian companies to finance coupons on Eurobonds issued by special purpose vehicles (SPVs) incorporated outside of Russia.
Tax should be withheld by the tax agent and paid to the Russian budget. WHT rates may be reduced under a relevant DTT, provisions of which may be applied based on confirmation of tax residency, which is to be provided by a foreign company to the Russian tax agent prior to the payment date (no advance permission from the Russian tax authorities is required) and also as long as general conditions are fulfilled (proof of beneficial ownership, etc.).
The Russian tax authorities recognise the terms of treaties concluded by the Union of Soviet Socialist Republics (USSR) until they are renegotiated by the Russian government. Furthermore, the list of effective tax treaties is continuously updated.
The concept of the actual owner of income (i.e. the 'beneficial owner') was introduced into Russian tax legislation by the so-called 'Deoffshorisation' Law. It determines the ability to apply lower tax rates under a DTT.
There is not any test on beneficial ownership in the Russian tax legislation, which means that Russian tax agents cannot be entirely comfortable applying reduced tax rates on income paid abroad. In making any payments, they need to consider the risk of additional tax and penalties to be paid at their own expense.
According to the law, a tax agent has to request confirmation that a foreign entity is a beneficial owner of income. If the actual beneficial owner is known, the tax agent may apply the 'look through' approach (to use a treaty with the country where this beneficial owner resides).
If the beneficial owner is located in Russia or a non-treaty country, the income paid is taxed under the RTC rules (note that a zero tax rate on dividends applies under special criteria).
The list below indicates the effective tax treaties (in alphabetical order):