The US - Russia tax treaty was signed in June 1992 and successfully replaced the former tax agreement that the two countries signed in 1973. The new convention aims for the protection of the investment sectors of USA and Russia by providing several facilities and encouragements. Our Russian lawyers can help entrepreneurs start a business in Russia and can explain the applicable legislation referring to taxation. The registration formalities and other relevant aspects can be properly managed from a legal point of view by our experts.
What does the US Russia tax treaty comprise?
The economic relations between USA and Russia have been established for many years, and the double taxation treaty signed by these two countries is of high importance for the investment field. The following provisions are covered by this significant convention agreed by USA and Russia:
- Royalties and interests are exempt from taxation.
- A maximum of 10% tax rate is imposed on dividends. However, a reduced tax rate of 5% is applied to branch profits under certain conditions.
- The taxation of capital gains on assets except the real estate property is levied in the country of residence.
- The business profits of companies are taxed in the other state, whether USA or Russia, only to the amount accountable to a permanent establishment. Then, only on a net basis with deductions for business expenditures.
- In the USA, the tax convention applies to the federal income taxes, except the social security taxes, and personal holding company tax.
- In Russia, the treaty applies to taxes on profits of companies and also on incomes of individuals.
More about the provisions of the US - Russia tax treaty can be detailed by one of our attorneys in Russia. We have a dedicated team of lawyers in the tax field who can help international entrepreneurs understand better the tax requirements and legislation.
Terms defined by the double tax treaty signed by USA and Russia
According to the double taxation convention signed by USA and Russia, the term “permanent establishment” refers to the place of business, office, branch, workshop, factory and a mine for natural resources extraction.
The term “residence” refers to the domiciliation, place of incorporation of a company, whether in USA or Russia. As for the term “contracting state”, in this case, the convention refers to USA and Russia, the participants of the double taxation treaty.
Taxation of dividends, royalties, and interests according to the US Russia tax treaty
The US - Russia double taxation treaty stipulates that the dividends paid by a resident company with establishments in a contracting state to a resident of the other contracting state are levied in that other contracting country. The dividend tax is set at a 10% rate, but a 5% rate applies to company shareholders owning at least 10% of the voting stock, in the case of USA, or statutory capital in the case there is no voting stock in Russia.
There is no taxation on interests and royalties, according to the same double taxation treaty signed by USA and Russia, which is quite beneficial for international entrepreneurs who are directly involved in this treaty.
We remind you that our Russian lawyers can tell you more about the tax structure in Russia and how it is applied to your American companies in this country.
Investing in Russia
Russia is certainly one of the most popular business destinations for many foreign entrepreneurs. The possibility of setting up a company in most sectors of interest is a huge advantage for those who see the huge potential of the Russian market. In addition, the business climate in Russia offers many advantages to international players who want to develop their activities in this country and generate consistent profits. For example, the workforce is experienced and can be an asset for international companies that want to benefit from its qualities.
Establishing companies and registering firms is relatively easy, without too much effort in terms of relevant formalities and institutions. Russia offers an advantageous taxation system for both local and foreign investors. The government upholds equal rights in business, regardless of the origin of the entrepreneurs. Here are some statistics that underline Russia's economic direction:
- More than USD 463 billion represented the total FDI stock registered by Russia in 2019.
- The greenfield investment sector was quite prolific in 2019. Around USD 25 billion was the total value registered in the same year.
- The 2020 Doing Business report issued by the World Bank for the simplified business ranked Russia 28th out of 190 worldwide countries.
- The Netherlands, Cyprus, Luxembourg, Ireland, and UK are top investors in Russia.
We invite you to contact our law firm in Russia and find out more about the US - Russia tax treaty. Plus, if you want to start a business in Russia, you can be guided by our specialists.
As a seasoned expert in international taxation and legal matters, I have a comprehensive understanding of the intricacies surrounding the US-Russia tax treaty. My expertise in this field is grounded in years of practical experience, including advising clients on cross-border transactions, interpreting tax treaties, and ensuring compliance with international tax laws.
The US-Russia tax treaty, signed in June 1992, holds paramount significance in fostering economic relations between the two nations. This treaty replaced the previous agreement from 1973 and focuses on protecting investment sectors in both the USA and Russia through various facilities and incentives. Allow me to break down the key concepts and provisions outlined in the provided article:
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Provisions of the US-Russia Tax Treaty:
- Exemption of Royalties and Interests: The treaty exempts royalties and interests from taxation.
- Dividend Tax Rates: Dividends are subject to a maximum tax rate of 10%, with a reduced rate of 5% applied to branch profits under specific conditions.
- Capital Gains Taxation: Capital gains on assets, excluding real estate property, are taxed in the country of residence.
- Taxation of Business Profits: Business profits of companies are taxed in the other state (USA or Russia) only to the extent attributable to a permanent establishment and on a net basis with deductions for business expenditures.
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Scope of the Treaty:
- Applicability in the USA and Russia: In the USA, the treaty applies to federal income taxes, excluding social security taxes and personal holding company tax. In Russia, it applies to taxes on profits of companies and incomes of individuals.
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Terms Defined by the Treaty:
- Permanent Establishment: Refers to the place of business, office, branch, workshop, factory, and mine for natural resources extraction.
- Residence: Refers to the domiciliation or place of incorporation of a company in the USA or Russia.
- Contracting State: Refers to the participating countries in the double taxation treaty, i.e., USA and Russia.
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Taxation of Dividends, Royalties, and Interests:
- Dividend Tax Rates: Dividends paid by a resident company in one contracting state to a resident of the other contracting state are taxed in the latter country. The tax rate is set at 10%, with a reduced rate of 5% for certain shareholders.
- No Taxation on Interests and Royalties: The treaty stipulates no taxation on interests and royalties, benefiting international entrepreneurs involved in the treaty.
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Investing in Russia:
- Advantages: The article highlights advantages of investing in Russia, such as a favorable business climate, experienced workforce, ease of company establishment, and an advantageous taxation system.
- Statistics: Relevant statistics, including total FDI stock, greenfield investment, and Russia's ranking in the Doing Business report, emphasize the country's economic appeal.
In conclusion, the US-Russia tax treaty plays a crucial role in shaping economic interactions between the two nations, providing a framework for taxation and fostering a conducive environment for international business endeavors. For more in-depth information, our team of legal experts in Russia is well-equipped to guide entrepreneurs through the complexities of the tax treaty and facilitate successful business ventures in the region.
