ACCOUNTING
TAX REPORTING
PAYROLL in RUSSIA

Although the Russian accounting principles are now mainly based on IFRS there is some difference between accounting and tax reporting rules in Russia. The Russian tax authorities consider that any transaction has to be confirmed by a specific justifying documents, and any deductible expenses has to be directly linked to the business of the company and also confirmed by a proper document. For example, you may not book an already paid invoice for consulting services unless you collect from the service provider a signed and stamped act of rendered services and, and may not set off the paid VAT against the incoming VAT unless you receive the original VAT invoice (shet-factura) from the other party. Therefore, we work tightly with our clients to ensure their compliance with the Russian accounting and tax reporting standards.

We provide a full range of accounting and tax reporting services across Russia since 2007. We prepare and file electronically all mandatory accounting, tax and statistical reports for your business in Russia. Our services:

  • Day-to-day accounting recordkeeping;
  • Accounting system design;
  • General ledger maintenance;
  • Monthly and year-end closing assistance;
  • Accounts reconciliations;
  • Petty cash reports processing;
  • Depreciation schedules;
  • Accounting software assistance;
  • Customization of accounting systems for client-specific needs;
  • Selection of the most optimal operation scheme in view of tax consequences;
  • Tax reporting and compliance including corporate profit tax, assets tax, VAT, land tax, transportation tax and personal income tax returns;
  • Financial statement preparation;
  • Tax returns for entities with simplified tax regime and regular VAT regime;
  • Financial reviews for management;
  • Production of various analytical reports across business segments and regions;
  • Bank account set-up and payments handling;
  • Representation of clients before the Russian tax office;
  • Assistance with VAT off-sets;
  • Transfer pricing control;
  • Reports for the company headquarters under the client standards;
  • Enforcement of double tax treaties provisions in respect to dividends, interests and royalties;
  • B2B Electronic document interchange.

The Russian payroll system is somewhat complicated compare to the payroll in other countries. For example, an average salary which has to be paid to a Russian employee during his annual paid leave or a business trip shall be based on the average salary for the previous 12 months, however, the salary for vacation is based on the calendar days and the business trips salary is based on the number of working days for that period.

The social charges in Russia are paid by an employer only. The employer acts as a tax agent and withholds a 13% flat rate income tax from the employees (tax resident) remuneration and transfers the withhold tax to the budget on the day of the salary payment.

In Russia the salary has to be paid twice a month: a fixed advance around 15 of the month and the remaining amount is usually paid either on the last business day of the month or at the very beginning of the following month. Our services include:

  • Day-to-day payroll processing and related tax and social security filing;
  • Customization of payroll processing systems, fringe benefits and incentive policies;
  • Review of payroll records for identification of tax and legal risks;
  • Business trips documentation processing;
  • Sick leave sheets processing for employees;
  • Maternity leave sheets processing;
  • Redundancy and termination compensations;
  • Mandatory reporting on the salary of highly-qualified specialists to the Russian immigration service.

The Russian HR documents administration remains a rudiment of the soviet past: any action in respect to an employee such as annual leave, business trip, no-pay vacation, bonuses or transfer to another position has to be documented by “prikaz” (order).

In addition, every employee in Russia, including foreign nationals, has to have a labor record book, a document where the employees work history is recorded. The labor record book is kept by the company during the employment. The employer makes a record in the labor book upon the employee’s engagement and then upon his termination stating the reason for such termination (voluntary departure, redundancy, dismissal due to the employees fault).

Our HR experts can administrate all mandatory HR documents for your company in Russia, including:

  • HR document processing including orders on engagement, termination, vacation, business trips and other; timesheets; job descriptions for each job post; vacation schedule; sick leave, business trips, maternity leave, redundancy, labor record book;
  • Maintaining day-to-day HR documents;
  • Drafting necessary HR related internal regulations on bonuses, business trips, code of conduct, personal data, confidentiality;
  • Audit of HR records and restoration of incorrect or missing documents;
  • Drafting employment agreements;
  • Work permits processing for foreign nationals: a regular 1 year and the 3 year highly qualified specialists (HQS) working visa and residency visa for the family members;
  • Labor law related advice;
  • Assistance with redundancy and employees termination.

An internal audit is a valuable mean of the management control over the Russian company operation. It enables the management to ensure that the company complies with the current laws, the accounting is accurate and truthful, to indentify deficiencies, if any, in the reporting and to eliminate them before the tax or mandatory annual audit.

Our tax planning experts can also help optimize your business tax liabilities and ensure your assets are not eaten-up through overpayment of taxes. Based on an internal audit of your business, we can propose specific solutions to eliminate or decrease tax risks related to operation in Russia.

We assist our clients with:

  • Audit under the Russian accounting standards and International Financial Reporting Standards;
  • Audits for banks, shareholders or investors;
  • Internal audit for management;
  • Elaboration of a report on possible tax risks and their mitigation;
  • Assistance with recovery or offsetting of overpaid taxes;
  • Testing and analyzing performance of the management and internal control systems;
  • Implementation and adaption of the mother company compliance and internal control proceedings.

We provide financial consulting to clients who are looking for investors to grow their business, require finance for a new project, willing to sell business in Russia or just require an advice on the financial management restructuring. We offer:

  • Draft and review of business plans;
  • Examination of the general financial situation;
  • Review of the client funding requirements; 
  • Review of the business for presentation to potential investors;
  • Development of a strategy to optimize the operational and financial activities of the business;
  • Examination of financing options with specific recommendations;
  • Design of an optimal funding structure;
  • Drafting a full package of documents to apply for external financing (feasibility study, presentations, memorandums, investors’ offers, etc.) ;
  • Design accounting and reporting processes;
  • Management reporting and budgeting;
  • Management of cash flow;
  • Short-term and long-term investment planning.

When you are considering buying an existing business in Russia a DDI is a must. The DDI will enable you to understand better the ownership structure, the company true financial situation, expenses and revenue details, possible tax risks. We can assist with:

  • General evaluation of a potential project;
  • Financial and economic analyses of the company operations and a forecast of future operations;
  • Accounting, tax, financial, HR documents and operational due diligence investigations to identify potential risks and liabilities;
  • Examination of currently valid agreements, the company’s engagements and obligations;
  • Examination of possible insolvency or the company’s bankruptcy;
  • Tax advice on the transaction structuring.

We have extensive experience of assisting clients with incorporation, restructuring or voluntary liquidation of their business in Russia. Your presence in Russia is not required for the company incorporation because all documents can be certified in the country of your residency. Namely we handle:

  • Incorporation of representative offices, branches, subsidiaries of foreign companies in Russia;
  • Domiciliation of your company in Russia;
  • Interim management for your company in Russia until you receive a work permit;
  • Assistance with opening of a bank account;
  • Drafting of share sale and purchase agreements;
  • Drafting of shareholders’ agreements;
  • Reorganization (merger, spin off, assets transfer) of your business in Russia;
  • Voluntary liquidation of the company in Russia.

How can I incorporate a company in Russia?

The process of a company incorporation is relatively simple in Russia. Any foreign national or corporation can be a sole shareholder of a Russian company. The most common form of incorporation is a limited liability company (LLC) or an “OOO” in Russian. The minimum charter capital of the company is RUB 10 000 (apr USD 170). The founding-shareholder has to certify an application for the LLC’s incorporation before a notary public either in Russia or in the country of his residency. The registration of an LLC takes three business days.

What are the tax rates for corporations in Russia?

There are two tax regimes in Russia: the general tax regime and the simplified tax regime.

The following rates are applicable under the general tax regime: the corporate profit tax 20% flat rate, 18% VAT, and the assets tax 2,2%.

The company which turnover does not exceed RUB 150 000 000 (apr USD 2,5 mn) per year and meets certain other criteria may use the simplified tax regime. The companies under the simplified tax regime do not charge the VAT. The simplified tax regime companies may choose how to pay the corporate profit tax: either to pay 6% of the turnover, however, expenses are not deductible; or 15% of the net profit, expenses are deductible.

A company is free to switch the tax regime once a year, unlimited number of times during its operation.

Can a foreign national be a CEO (director general) of the company?

Yes, but only when a work permit has been obtained by that company. We can provide an interim director service while your work permit is being processed. It takes from 4 to 6 weeks to process the work permit.

How a foreigner can obtain a work permit in Russia?

There are 2 options: a regular 1 year working visa and a 3 year working visa for a highly qualified specialist (HQS). The majority of foreign employees obtain the 3 year working visa. The minimum monthly gross salary for the 3 year working visa is RUB 167 000 (apr. USD 2800). We also provide visa support for the employee’s family members.

What is the personal income tax rate in Russia?

The personnel income tax for a tax resident is 13% flat rate and 30% for a non-resident. The HQS foreign employee pays the 13% flat rate personal income tax from the very first day of his engagement in Russia.

What social charges I have to pay in Russia?

The social charges in Russia are paid by the employer only at the following rates: 30,2% up to RUB 755 000 (gross remuneration per calendar year including bonuses starting as of 1 January each year), 27,3% for the remuneration in the range of RUB 755 000-RUB 876 000, and then 15,3% for the remuneration exceeding RUB 876 000 until the end of the calendar year. The higher salary you pay the less social charges are.

A company employing a foreign national under a 3 year HQS working visa pays only 0,2% social charges regardless of the expat annual remuneration.