Who is a tax resident in Russia?

Russian tax residents have significant rights and obligations provided by the Russian laws. Foreign citizen or an organization may carry out business activity on the territory of the Russian federation both as a tax resident or nonresident. From taxation perspective nonresidents are subject to all Russian taxes as residents do.

Permanent representation of an overseas business may operate as a non-resident. At the same time, such a representation may be named as a branch, subdivision, office or agency. An exception may be banks, since the Russian law prohibits them from opening branches. In this case, an entity will operate as a tax nonresident.

Both foreign and Russian citizens are recognized as tax residents only if the period of their stay in Russia is not less than 183 days within 12 months.

Federal Tax Services issues Residency Certificates to foreign citizens end entities.

Residents

Legal entities (organizations) established in the jurisdiction of the Russian Federation under the Russian regulations are Russian tax residents. In order to operate in Russia as a tax resident foreign companies normally set up Russian joint ventures with a Russian partner or register a Russian subsidiary.

Besides, a foreign entity, which is management from Russia, may be recognized as a tax resident in accordance with the Tax Code. In particular, an organization headquartered in Russia may be recognized as a Russian tax agent. Russian tax authorities will recognize that a company is headquartered in Russia on ONE of the following two compulsory conditions:

• An executive body of the enterprise permanently operates in the Russian Federation in a capacity less than it has in any other state ;
• CEOs of the organization are exercising their governing primarily in the Russian Federation.

Other reasons for recognition of a foreign entity as a Russian tax resident may be as follows:

• An entity’s accounts or management accounts (apart from preparation of consolidated financial statements and or management reporting and operations analysis) are maintained in the Russian Federation;
• Secretariat is located in the Russian Federation;
• Day-to-day personnel management is maintained in the Russian Federation.

Besides, foreign companies operating under specific international agreements and operators of new marine hydrocarbon fields may be recognized as Russian tax residents.

Foreign organization operating in the Russian Federation via a separate subdivision, has the right to recognized itself as a Russian tax resident at its sole discretion should this not contradict with international tax treaties.

Nonresidents

A foreign entity is not recognized as a tax resident of the Russian Federation if the following conditions are simultaneously not complied with:

For a fiscal year period, the entity receives not less than 90% of its income from bonds as an issuer or on other legitimate basis;
The entity is permanently located in the state with which the Russian Federation has international treaties regulating the issues of taxation of personal income and income of organizations;
The share of the above-mentioned income of the foreign organization for a reporting period is not less than 90 percent of the total income of such an organization for the said period.