Taxation

Definitions

Equality

— taxes should be proportional to the taxpayer’s income (“each according to ability”).

Certainty

— the taxpayer must know in advance the amount, time, and method of payment.

Convenience

— the tax must be collected at the time and in the way that are most convenient for the payer.

Economy

— the costs of collecting taxes must be minimal in relation to the receipts.

A tax is a mandatory, individually non-reimbursable payment levied by the state on organizations and individuals in the form of the alienation of monetary funds for the purpose of financially supporting governmental functions.

Key features: obligatoriness (not a voluntary contribution); non-reimbursability (not payment for a specific service); monetary form; legally established.

Equality — taxes should be proportional to the taxpayer’s income (“each according to ability”).

Certainty — the taxpayer must know in advance the amount, time, and method of payment.

Definitions

Tax Evasion

— the illegal concealment of income or property. Criminally punishable. Examples: not recording revenue in the cash register, fictitious expenses.

Aggressive Tax Planning

— using loopholes and inconsistencies in the legislation to reduce taxes in ways not consistent with the legislator’s intent. Formally legal, but increasingly pursued by regulators (BEPS, GAAR).

Tax Planning

— legal optimization of the tax burden through the use of benefits, deductions, and special regimes explicitly provided for by law. Absolutely legitimate.

Tax Evasion — the illegal concealment of income or property. Criminally punishable. Examples: not recording revenue in the cash register, fictitious expenses.

Aggressive Tax Planning — using loopholes and inconsistencies in the legislation to reduce taxes in ways not consistent with the legislator’s intent. Formally legal, but increasingly pursued by regulators (BEPS, GAAR).

Tax Planning — legal optimization of the tax burden through the use of benefits, deductions, and special regimes explicitly provided for by law. Absolutely legitimate.

Choice of tax regime: Sole proprietor or LLC on the general system vs simplified tax system (6% on income or 15% on income minus expenses) vs patent system for sole proprietors vs professional income tax (4-6%).

Definitions

20%

— standard rate.

10%

— preferential: foodstuffs (basic), children's goods, medical goods, books, periodicals.

0%

— export (+ right to refund input VAT); international transportation.

Value Added Tax (VAT) is an indirect tax levied at each stage of the creation and sale of goods/services. The key principle: each participant in the chain pays VAT only on their own value added.

Example: The manufacturer sells a product for 120 rubles (including VAT of 20 rubles). The VAT payable by the manufacturer: 20 rubles. The distributor buys at 120, sells at 180 rubles (including VAT of 30 rubles). The VAT payable by the distributor: 30 - 20 = 10 rubles (credit for input VAT). The...

20% — standard rate. 10% — preferential: foodstuffs (basic), children's goods, medical goods, books, periodicals. 0% — export (+ right to refund input VAT); international transportation. Exemption from VAT: financial services (banks, insurers), medical services, education.

When exporting goods, a 0% rate applies. The company is entitled to refund "input" VAT (paid to suppliers). This stimulates exports. Mechanism: confirm the export (customs declaration), file the return, the Federal Tax Service verifies (desk audit — 3 months), refund.

Definitions

Failure to submit a return

— fine of 5% of the tax amount for each month, minimum 1,000 rubles.

Understatement of taxable base

— fine of 20% of the amount of the understatement (40% in case of intent).

The Federal Tax Service (FTS) is the main tax administrator. More than 80,000 inspectors. Tax control: desk audits (at the desk, without field visits, all returns are checked automatically), field audits (physically visit the company, no more than 2 months, up to 6 months in exceptional cases).

ASK VAT-2/3: an automated VAT verification system. Compares the returns of the entire chain of suppliers and buyers. A "gap" occurs when the buyer claims a deduction, but the supplier does not report the sale. This automatically generates a request. Russia is one of the world leaders in the degre...

The FTS knows practically everything: bank accounts (through the AML system), money flows, property, real estate transactions, foreign accounts (through CRS — automatic data exchange with 100+ countries).

Failure to submit a return — fine of 5% of the tax amount for each month, minimum 1,000 rubles.

According to data from the Federal Tax Service, approximately 50,000 tax disputes are considered in courts each year. The percentage of victories by tax authorities in court is about 80%. However, regarding amounts, the picture is different: large disputes are more often won by taxpayers, as the ...

Trend: the number of judicial disputes is decreasing (more are resolved at the pre-litigation stage or preventively).

Documentary confirmation of the reality of transactions: the reality of the deal is a key argument against accusations of obtaining unjustified tax benefit. Required: primary documents (acts, invoices), business correspondence, evidence of service provision/product delivery.

Due diligence when choosing counterparties: check counterparties for: existence of real activities (website, office, employees), absence from registries of unscrupulous suppliers, solvency, business reputation.

Definitions

Permanent differences

— expenses recognized in accounting but never accepted in tax accounting (excess deductible expenses).

Temporary differences

— timing differences in recognition (depreciation — accounting vs tax; provisions for doubtful debts). Lead to deferred tax assets and liabilities (DTA/DTL).

Corporate profit tax (CPT) is a direct tax on company profits. Object: profit = revenues - expenses.

Tax revenues = accounting revenues + normalized/non-normalized additions. Included: proceeds from sales, non-operating income (dividends, interest, foreign exchange gains, penalties from counterparties).

Tax expenses = all justified and properly documented expenses. Limitations: deductible expenses (advertising — 1% of revenue, representation — 4% of payroll, interest — key rate × 1.5), expenses with restrictions (social, sports).

Russia: base rate is 20% (3% — federal budget, 17% — regional). From 2025, an increase in the federal portion is planned. Preferential rates: IT companies (0%/3%), SEZ residents, agricultural producers, Skolkovo.

Transfer prices are the prices of transactions between related parties (parent and subsidiary companies, companies under common control). By manipulating transfer prices, a group of companies can reallocate profits to jurisdictions with lower taxes.

Example: A German company (tax rate 30%) sells goods to its Irish affiliated company (12.5%) at a price below the market level. The Irish company sells to the end customer at the market price. The profit is “moved” to Ireland.

The main international standard: related companies must conduct transactions at prices that would be established between independent parties under comparable conditions. The OECD Transfer Pricing Guidelines are the fundamental document.

Transfer pricing methods: 1. Comparable Uncontrolled Price Method (CUP) — the most preferred 2. Resale Price Method 3. Cost Plus Method 4. Transactional Net Margin Method (TNMM — the most widespread) 5. Profit Split Method

Since 2021, Russian IT companies have received substantial benefits (if more than 70% of revenue comes from software and the company is accredited):

Profit tax: 0% for organizations developing and distributing software (until 2025, after which 5% is planned).

VAT: exemption from VAT when selling rights to software included in the register of Russian software.

Russia: R&D expenses are recognized at the actual amount with a coefficient of 1.5 (i.e., 1 ruble of expenses reduces the base by 1.5 rubles) if the project meets the list of critical technologies.

The basic problem of corporate taxation: the company pays income tax on earned income; when dividends are distributed, the shareholder pays tax again on the income received. Thus, the same economic income is taxed twice.

Different countries address this issue in various ways: exemption from tax (participation exemption), partial exemption, credit for corporate tax paid.

Dividends to an individual who is a resident of the Russian Federation: 13% (15% on amounts exceeding 5 million rubles per year).

Dividends to an individual who is a non-resident: 15% (if there is no Double Taxation Treaty, DTT).

Mergers and acquisitions generate significant tax events. The tax aspect often determines how the deal should be structured.

Share Deal (purchase of shares): the seller pays tax on the profit from the sale of shares (personal income tax (PIT) 13-15% for individuals, corporate profit tax for organizations). The buyer “inherits” the company’s historical tax risks (hidden liabilities, disputes). There is no tax depreciati...

Asset Deal (purchase of assets): the seller pays VAT (if the assets are subject to it) + profit tax from the sale of assets. The buyer receives a “reset” — assets are recorded at the acquisition cost, depreciation is calculated. There are no “inherited” tax risks.

Tax neutrality of reorganization: in the case of reorganization in the form of merger, accession, or spin-off — the transfer of assets and liabilities is not considered a sale and is not subject to VAT and profit tax. The successor receives the tax history (including tax losses to be carried forw...

Dividends from Russian companies: 13% personal income tax (PIT) (15% if the total annual income exceeds 5 million rubles).

Dividends from foreign companies: 13%/15% PIT. They are considered part of "passive income".

Coupon income on bonds: since 2021 — 13%/15% PIT without exceptions (previously federal loan bonds had benefits).

Capital gain: when selling securities — 13%/15% PIT is levied on the difference (sale price - purchase price - broker commissions). A loss on one instrument reduces income from another (netting within the year and carrying losses forward for 10 years).

Corporate Property Tax (Russia): maximum rate of 2.2% of cadastral value (for certain objects — cadastral base). Objects: buildings, premises, structures on the company’s balance sheet.

Property Tax for Individuals: rates 0.1–0.3% (residential real estate), up to 2% (commercial, high-value). Tax base — cadastral value minus deductions (20 sq.m for an apartment, 50 sq.m for a house).

Land Tax: 0.3% (agricultural, residential development) or 1.5% (other). Base — cadastral value of the land.

Minimum holding period: 5 years (3 years for sole residence, inheritance, gifts from close relatives) — after this, personal income tax is not paid.

Russia: The inheritance tax was abolished in 2006. Exception: royalties paid to heirs of authors in science and literature — 13% Personal Income Tax (PIT). When receiving real estate as inheritance — there is no tax, but if sold before the minimum holding period — PIT applies.

USA: Federal inheritance tax — from 18% to 40% on amounts exceeding $13.6 million (2024). Estate Tax applies to worldwide assets of US citizens and residents.

United Kingdom: Inheritance Tax — 40% on amounts over £325,000 (for couples — up to £650,000). The worldwide assets of residents are taxed.

UAE: No inheritance tax. However, for non-residents, the Foreigners Law applies: with regard to assets in the UAE, Sharia law may apply (for Muslims) or the law of the country of citizenship. Practically, it is important for non-residents to draft a UAE will (DIFC Wills Service Centre).

Capital Gains — profit from the sale of a capital asset (stocks, real estate, business).

Russia: PIT 13%/15% with no distinction between "short-term" and "long-term" gains. Benefits: LDV (3 years), IIS.

USA: Short-term capital gains (< 1 year) = ordinary income rate (up to 37%). Long-term capital gains (> 1 year): 0%, 15%, or 20% (depends on income). Additional 3.8% tax (NIIT) for high-income.

United Kingdom: Capital Gains Tax: 10% (base rate taxpayers) or 20% (for most assets); 18%/28% for residential real estate. Annual deduction £3,000 (reduced as of 2024).

Russia (Law on DFA, 2021): cryptocurrencies are property. Not recognized as legal tender. Mining is permitted (with notification, tax on income). Circulation — in the “gray” zone for settlements.

USA: cryptocurrencies are property. The IRS taxes each transaction (exchange, purchase of goods) as a property disposition.

UAE: no personal income tax. VASP licensing (Virtual Asset Service Provider) through VARA (Dubai) or FSRA (ADGM). One of the world’s centers for crypto business.

EU: DAC8 — directive on the automatic exchange of data on crypto transactions (starting in 2026).

Residence (worldwide taxation): taxation based on the place of residence with respect to worldwide income.

Source (source taxation): taxation at the source of income, regardless of the recipient's residence.

Most countries combine both principles, which leads to double taxation. DTTs eliminate or reduce double taxation by:

OECD Model: emphasis on the country of residence. Advantage — for developed capital-exporting countries.

BEPS (Base Erosion and Profit Shifting) — the erosion of the tax base and the shifting of profits. Strategies that allow transnational corporations to pay unjustifiably low taxes. According to OECD estimates, annual losses to budgets amount to $100–240 billion.

Classic schemes: “Double Irish with Dutch Sandwich” (Apple); routing royalties to low-tax jurisdictions; artificially creating PE in low-tax countries.

Action 1: taxation of the digital economy (Pillar One and Two) Action 2: hybrid instruments and structures Action 3: CFC (Controlled Foreign Corporation) rules Action 5: harmful tax practices (Patent Box) Action 6: abuse of tax treaties (treaty shopping) Action 7: artificial avoidance of PE Actio...

The G20/OECD agreed on a global minimum corporate tax rate of 15% for companies with revenue >€750 million. Comes into force in 2024–2025 in most EU countries. Mechanism: if the source country taxes at a rate below 15%, the home country of the parent company “tops up” the tax (Income Inclusion Ru...

FATCA (Foreign Account Tax Compliance Act, 2010, USA) — requires foreign financial institutions to report to the IRS on accounts of American taxpayers. Penalty for non-compliance: 30% withholding from any US payments to the bank.

Virtually all major international banks have signed agreements to comply with FATCA. Banks collect the client's status (American/non-American) when opening an account.

CRS (Common Reporting Standard) — developed by the OECD in analogy to FATCA for the whole world. 100+ countries participate in the automatic exchange of data. Banks automatically report annually to the tax authorities of the client's country of residence information about their accounts.

What is transmitted: Full name, TIN (tax identification number), country of residence, account number, year-end balance, income (interest, dividends, proceeds from sale of assets).

A CFC (Controlled Foreign Company) is a foreign company or a structure without legal entity formation (such as a trust or partnership) that is controlled by a Russian tax resident.

Control criterion: An individual/organization is recognized as a controlling person if: share of participation >25%, or >10% provided that the share of Russian residents in the company is >50%.

The controlling person must include the undistributed profit of the CFC in their tax base proportionally to their share. Personal income tax or corporate profit tax at Russian rates.

Threshold: CFC profit <10 million rubles — is not included in the base of the controlling person.

Russia: A resident of the Russian Federation is an individual who has stayed on the territory of the Russian Federation for ≥ 183 days during 12 consecutive months. Regardless of citizenship. Personal income tax rate for residents — 13%/15%, for non-residents — 30% (exceptions: labor income of hi...

UAE: UAE tax residency since 2023: (1) physical presence ≥ 183 days in the UAE, or (2) Emirates ID + permanent place of residence + center of vital interests in the UAE. UAE — no personal income tax; therefore, the status of "UAE resident" is important for exclusion from residency in other countr...

United Kingdom: Statutory Residence Test — a complex system taking into account days of presence, "connections" to the United Kingdom (home, work, family).

In dual residency cases (meets the 183-day requirement in both countries), the "tie-breaker" in DTA is used — sequence of criteria: permanent home → center of vital interests → habitual abode → citizenship → agreement of competent authorities.

The UAE is historically known as a jurisdiction with zero direct taxes: no personal income tax; no capital gains tax; no inheritance tax; no withholding tax on dividends/interests.

This tax environment has attracted millions of expatriates and thousands of businesses. The UAE has become a regional hub for the Middle East, Africa, and Asia.

The UAE introduced VAT on January 1, 2018. The standard rate: 5% (one of the lowest in the world). Applies to most goods and services.

Zero rate: export, international transportation, certain financial services, residential real estate (first supply), education, healthcare.

Free Economic Zones (Free Zones, Freezones) are special economic territories with simplified regulation and tax incentives. In the UAE, there are over 40 freezones, each with its own specialization.

Key ones: DIFC (finance), ADGM (finance, ADGM), JAFZA (logistics, trade), Dubai Internet City / Media City (IT, media), Dubai Healthcare City, Sharjah Publishing City.

Historically, Freezone companies were completely exempt from corporate tax for a period of 15–50 years. With the introduction of corporate tax (2023), the situation changed.

Qualifying Income (Freezone) — 0% rate: income from transactions between Freezone companies; income from qualified types of activities (asset management, finance, HQ functions, distribution); export income.

Abu Dhabi Global Market (ADGM) is an international financial center on Al Maryah Island in Abu Dhabi. Established in 2015 as a competitor to DIFC. It has its own legal system (English Common Law), regulator — FSRA (Financial Services Regulatory Authority).

ADGM offers: 0% corporate tax (under a special regime); no VAT for transactions within ADGM; no capital gains tax; no inheritance tax.

Feature: ADGM has signed the Pillar Two agreement with the UAE government: large MNCs (€750 million+ in revenue) in ADGM may fall under a 15% minimum tax through the UAE Domestic Minimum Top-up Tax.

FSRA licenses: Regulated Activities (asset management, brokerage, custodian, fund management, investment advisor); Non-Regulated Activities (technology companies, professional services, trading).

The UAE does not levy personal income tax on individuals. This applies to: salary and bonuses, dividends and interest, capital gains, rental income, and freelance income.

For high net worth individuals, the UAE is one of the most attractive jurisdictions in terms of tax burden.

UAE citizens: are required to pay contributions to the General Pension and Social Security Authority (GPSSA): 5% employee + 15% employer. Expats: are exempt from GPSSA. Contributions to the country of citizenship — voluntary or mandatory according to the legislation of the home country.

VAT (5%): applies to most consumer spending. VAT refund for tourists (Tax Refund for Tourists) — upon departure from the UAE.

The UAE is an ideal platform for conducting business with the Middle East, Africa, and South Asia. DTT Network: The UAE has concluded approximately 130 Double Tax Treaties (DTTs), which reduces withholding tax on dividend, interest, and royalty payments from partner countries.

Regional Headquarters (Regional HQ): tax incentives for companies recognized as regional HQs (qualification by the Ministry of Economy). Reduction of subnational fees, priority in obtaining licenses.

Trading Hub: The UAE is the largest trading hub: commodities (oil, metals, grain), consumer goods, technology. Freezone companies (JAFZA, DMCC) — zero tax on qualified trading income.

Holding Structure: use of the UAE as a holding jurisdiction: no withholding tax on dividends from the UAE to most jurisdictions; income from the sale of shares is not subject to CGT.