[Robert Drobot]

Doesn't Russia get by with a flat tax of 13%???

I could buy into that scheme.

[ancient_geezer]

Doesn't Russia get by with a flat tax of 13%???
I could buy into that scheme

No, but there are those that would lead one believe so.

 

RUSSIA:  PART TWO OF THE RUSSIAN FEDERATION TAX CODE

August 10, 2000

 

Alexander Chmelev and Evgeny Astakhov

Baker & McKenzie, Moscow Office

 

Sent by BISNIS, U.S. Department of Commerce, http://www.bisnis.doc.gov

Judith_Robinson@ita.doc.gov, Tel: 202-482-2293.  BISNIS sends this report as a courtesy to the U.S. business community. This is not to be construed as endorsement or sponsorship of any information or group.

On August 5, 2000, Russian Federation President Vladimir Putin signed into law four chapters of Part Two of the Russian Federation Tax Code and Federal Law No. 118-FZ ôOn the Implementation of Part Two of the Russian Federation Tax Code and Amendments to Certain Federal Laws on Taxationö (the "Implementation Law").  The chapters of the Tax Code signed into law by the President are Chapter 21 - VAT, Chapter 22 - Excise Taxes, Chapter 23 - Personal Income Tax, and Chapter 24 - Unified Social Tax.  These four Chapters and the Implementation Law were officially published in Rossijskaya Gazeta on August 10, 2000, and, with few exceptions, will become effective on January 1, 2001.

The most sweeping changes introduced into the Russian tax system by this new legislation are as follows:

1.         VAT (Chapter 21 of the Tax Code)

Although Chapter 21 of the Tax Code does not change VAT rates or the general VAT structure, it contains numerous provisions, which will significantly affect most businesses in Russia.  Most notably, Chapter 21 substantially modifies the "place of service" rules, which generally determine whether for VAT purposes a particular transaction has occurred in Russia and is, therefore, subject to Russian VAT.  Effective from July 1, 2001, Chapter 21 also will treat export sales to CIS countries in the same way as sales to all other foreign countries, and will exempt them from VAT.  On the downside, Chapter 21 will repeal a number of long-standing and important VAT exemptions, including an exemption for license fees for the use of intellectual property (such as, patents, copyrights, and trademarks), and will significantly narrow the VAT exemption for pharmaceuticals.

2.         Personal Income Tax (Chapter 23 of the Tax Code)

 

Chapter 23 of the Tax Code will replace the current progressive tax rates ranging from 12% to 30% with a flat tax rate of 13%.  This 13% rate will apply to almost all categories of income earned by individuals who are Russian tax resident.  A 30% rate will apply to dividends, and to any Russian source income received by individuals who are not Russian tax resident.  A 35% rate will apply to income from gambling, lottery prizes, deemed income from low-interest or interest-free loans, certain insurance payments, and excessive bank interest.

3.         Unified Social Tax (Chapter 24 of the Tax Code)

Chapter 24 of the Tax Code will replace the existing employersÆ contributions to four separate social benefit funds (which currently are imposed at an over-all rate of 38.5%) with one unified social tax.  This unified social tax will have a regressive tax scale from 35.6% to 2% of an employee's salary with the lowest rate applicable to the portion of an employeeÆs annual salary in excess of 600,000 Rubles (approximately US$22,000 at the current exchange rate). It should be noted that under the Implementation Law, as a transition rule, the lower rate of this tax will be 5% rather than 2% during 2001.

4.         Excise Taxes (Chapter 22 of the Tax Code)

As a countermeasure to reducing rates of other federal taxes, Chapter 22 of the Tax Code provides for an increase in excise tax rates for gasoline and other oil products by almost 300%.  It also provides for a less dramatic increase of excise tax rates for tobacco products and certain passenger cars.

5.         The Implementation Law

a.         Turnover Taxes

Effective from January 1, 2001, the Implementation Law repeals the Housing Fund Tax of 1.5% and reduces the Road Users Tax from 2.5% down to 1% and completely repeals the Road Users Tax effective January 1, 2003.   These taxes are imposed on gross sales and have been among the most onerous taxes on business in Russia. 

b.         Regional Tax Concessions

The Implementation Law reconfirms the right of regional authorities to provide tax exemptions for the regional portion of federal taxes retroactive to April 1, 1999. This reconfirmation resolves an issue that arose in 1999 as to whether the regional portion of profits taxes could be reduced pursuant to regional incentive laws.

c.         Profits Tax Rate

Apparently in compensation to local budgets for the cancellation of turnover taxes, the Implementation Law authorizes municipal governments to introduce an additional "municipal" profits tax of up to 5% of a taxpayer's taxable profits.  Thus the maximum overall profits tax rate may be increased from 30% to 35%.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)