- The branch has a right to engage in commercial activities.
- The order of obtaining work permits has not changed and the branch has no advantages in practice in spite of changes in the law.
- The branch is not a legal entity and therefore:
3.1 it can not be terminated due to bankruptcy;
3.2 it has no charter capital;
3.3 the chain of branch offices does not have to consolidate its tax reports;
3.4 it does not have to form accounting reports;
3.5 it does not have to pay VAT on rent.
According to the provisions of point 1, article 149, Tax Code of the Russian Federation there is no tax imposed on property lent by a letter to a foreign organization, accredited in the Russian Federation.
The present provision is applicable if the legislation of the relevant foreign country ((THE KINGDOM OF THE NETHERLANDS) has the same order in place in relation to organizations of the Russian Federation, accredited in the NETHERLANDS.
According to the order of MFA RF N 6498, Ministry of Finance RF N40n as of 08.05.2007 (issued on 15.10.2009) “On approving the List of foreign countries, whose citizens and (or) organizations, accredited in the Russian Federations, are exempt from VAT, when renting a property in the Russian Federation” THE KINGDOM OF THE NETHERLANDS is included in the above list.
This being said, VAT exemption is only applicable to unfurnished business (office) and residential properties.
Thus, the activities associated with letting of property by a Russian organization (letter) in the Russian Federation for commercial purposes to a foreign company (tenant of property) — resident of Netherlands, accredited in the Russian Federation, are not VAT-able according to p.1 article 149 TC RF, provided that the property is not furnished and (or) equipped.
3.6 It is regarded as a non-resident from a standpoint of the currency exchange legislation.
- Taxation (as compared to the resident-company):
| Analysis criteria |
Foreign company branch (non-resident) |
Russian company — resident |
| Income tax on commercial activities |
The object of tax on income of foreign organizations, practicing their activities in the Russian Federation by means of permanent representative offices is regarded as income gained via these permanent representative offices reduced by the value of costs incurred by the representative offices. (article 247, “Tax code of the Russian Federation (TC RF) (part two)”). |
Income is regarded as profit gained by the society and reduced by the value of incurred costs.
(article 247, “Tax code of the Russian Federation (part two)”) |
Tax rate — 20%.
According to p. 2 article 306 TC RF, the permanent representative office of a foreign organization in the Russian Federation implies a branch (representative office), by means of which the organization practices its business activity on regular basis in the Russian Federation, also associated with sale of goods and rendering of services.
When calculating the income. the branch may take into consideration profits and costs, incurred outside of the Russian Federation, but relevant to the business activity of the branch. |
Tax rate — 20%. |
| Tax on dividends derived from sources in the Russian Federation |
When transferring net income there is no this type of tax. |
According to the sub point 3, p. 3, Article 284 TC RF, the dividends paid by the Russian companies to foreign companies are taxable at the rate of 15 % (15% tax is withheld by the Russian company when making the payment). |
| VAT |
No difference |
No difference |
| Property tax (at 2.2.%) |
According to p. 2 article 374 as for the foreign companies, practicing business activities in the Russian Federation by means of permanent representative offices the object of taxation is regarded as movable and immovable properties associated with the objects of fixed assets and property obtained on concession agreement.
For the purpose of the present paragraph, foreign organizations should keep a record of taxation objects according to the order stipulated in the Russian Federation for the purpose of accounting. |
All of the fixed assets are taxable at the rate of 2.2% |
