11.12.2015 — Government Finds New Source of Funds: State-Owned Enterprises to Pay More Property Tax
The new amendments to Article 379 of the Russian Tax Code establish that companies that enjoy the right of economic management over commercial property will have to pay property tax based on its cadastral value. These amendments will apply to the calculation of tax made as of the end of 2016. Moreover, starting from the beginning of 2016, taxpayers that pay property tax based on its cadastral value have to calculate and pay advance tax payments based on the results of special calendar quarters, i.e. first, second and third calendar quarters.
Under the new amendments, companies that enjoy the right of economic management over commercial property will have to pay property tax based on its cadastral value. The right of economic management is a remnant of the Soviet times: it is a limited right in rem enjoyed by a state- or municipal-owned enterprise over property owned by the state or municipality.
Advance payments for other companies remain the same, i.e. they have to be made based on the results of the first quarter, half-year period and nine months of the relevant calendar year. The tax period (calendar year) has also been unchanged. Nevertheless, regional authorities are entitled to refrain from establishing compulsory advance payments. Therefore, not all companies will have to make advance payments every three months.
According to Article 374 of the Russian Tax Code, property tax is levied on both personal property and real estate. The tax should be paid not only by the owners of the said property, but also by those companies that enjoy rights of temporary possession, usage, disposition or fiduciary management over the property.
The cadastral value of real estate is the tax base for property tax for the following types of property: (i) administrative business centres, shopping centres and premises within these buildings; (ii) non-residential premises used as offices, shops, catering services, and to provide consumer services; (iii) any property owned by foreign companies operating without a permanent establishment in Russia.
The maximum tax rate for property on which the tax base is calculated based on its residual value is 2.2%, whereas the maximum tax rate for property on which the tax base is calculated based on its cadastral value is 2%. However regional authorities are entitles to offer reduced rates.
According to the recent amendments to the Tax Code, companies that enjoy the right of economic management over commercial property will have to pay property tax alongside with other taxpayers.
09.12.2015 — Small Companies May Declare Immunity Against State Control
Small enterprises will be able to make an application, in order to be excluded from the list of inspection plans annually approved by the monitoring authorities. The exemption procedure will be available from 2016 until 2018 under the Federal law “On protection of rights of legal entities and sole traders” as amended in July 2015.
At the end of November the Russian Government enacted a Ruling, which sets forth a procedure under which a small enterprise can make an application, in order to be excluded from the list of inspection plans. The Ruling also provides for the procedure under which the application shall be considered by the authorities, and the time limits thereof. The Ruling came into force on December 12, 2015.
In accordance with the Ruling, the monitoring authorities that decided to exclude a company from the list, should do so within 3 days as of receiving the application.
The company will be able to check whether it has been included into the list at http://plan.genproc.gov.ru/, and the list for 2016 will be available as of December 31, 2015.
Notably, the new procedure is applicable solely to small enterprises under the law “On the development of small and medium-sized enterprises in the Russian Federation”. Thus, in order to qualify for the exemption procedure, foreign persons should own no more than 49% of shares in the charter capital of the relevant entity, and the number of employees should not exceed the limitations set forth by the law.
The Ruling will also not be applicable to companies carrying out their activities in the sphere of health care, education, heat supply and energy.
09.12.2015 — Foreign Investment in Russia to Be Limited in Banking Sector
The Federation Council of the Russian Federation has approved the law limiting the maximum share of foreign investors in the charter capital of Russian credit institutions.
According to the new law, the maximum share of foreign capital in the total charter capital of banks carrying out their activity in Russia shall not exceed 50%. It follows from the law that foreign investment financed by income received in Russia, or repatriated to Russia from abroad, will not be taken into account when calculating the foreign share in the charter capital.
Moreover, foreign investment of foreign banks’ subsidiaries into the charter capital of Russian credit institutions will not be taken into account either.
The law provides for the actions of the Russian Central Bank, if the said quota is exceeded. Among other things, the Central Bank will be entitled to refuse registration and prohibit the increase of capital through foreign investment.
07.12.2015 — First Prison Sentence for Anti-Protest Legislation Infringement
It is the first time that the Russian court has imprisoned an individual for repeated infringement of the anti-protest legislation. An opposition activist Ildar Dadin has been sentenced to three years of imprisonment in a standard regime penal colony for participating in unsanctioned group protests. Notably, the prosecution had requested only two years of imprisonment. Dadin did not plead guilty.
A 33-year old Ildar Dadin, a civil society leader, was convicted under Article 212.1 of the Russian Criminal Code (repeated infringement of the assembly, protests and picketing procedure). According to the prosecution, Mr Dadin has so far participated in four unsanctioned meetings.
During the proceedings, Mr Dadin reminded the court that the Russian constitution provides for the right of peaceful protest. Nevertheless the judge found the defendant guilty.
Notably, criminal liability for this type of offence was introduced in 2014. Ildar Dadin is the first activist sentenced to a real prison sentence under the new law.
07.12.2015 — New Holding Structures Opportunities: Tax from Dividends Payable to Hong Kong Parent Companies to Be Reduced, Other Tax Benefits to Be Provided
The Russian Government approved the draft double taxation agreement between Russia and Hong Kong Special Administrative Region. It is expected that it will come into force at the beginning of 2016, says Russian Consul General in Hong Kong, Alexander Kozlov.
According to Mr Kozlov, this agreement will induce Asian and Foreign investors under Hong Kong jurisdiction to invest into Russian assets.
Among other things, after the agreement will come into force, Russia will not levy a number of taxes on passive income payable by Russian companies to Hong Kong investors.
Moreover, bearing in mind the requirements of Russian legislation regarding placement of shares by Russian companies abroad, the agreement will enable them to establish Special Purpose Vehicles directly in Hong Kong.
Russian companies have been showing interest in investing in Hong Kong, however so far have been reluctant to do so, mostly due to the risk of double taxation, as the China-Russia Double Taxation Treaty does not cover Hong Kong.
The draft agreement is intended to regulate taxation of business profit, property revenues, sea and air transportation earnings, passive revenues (dividends, interest and royalty) and individual income. It also determines methods of double taxation elimination, and provides for information sharing between competent authorities of the States.