On November 27, 2023, the President of the Russian Federation signed a law amending the Russian Tax Code regarding the taxation of foreign services. These changes will come into force on January 1, 2024.
Thus, Article 309 of the Russian Tax Code, which regulates the taxation of income received by a foreign organization from sources in the Russian Federation, adds income received by such an organization from the performance of work (provision of services) in the territory of Russia to an interdependent person.
Works will be considered performed (services rendered) in the territory of the Russian Federation if the buyer of works (services) carries out its activities in Russia, and the place of activities is determined by the place of state registration of the buyer. Thus, the object of taxation will be such services as management, consulting, marketing, engineering, legal support, IT, and so on (the list of services is open). Such intra-group income will be taxed at the rate of 15% (subpar. 4, par. 2, Art. 284).
These changes will primarily affect organizations from the so-called unfriendly countries with which Double Tax Agreements has been suspended. Organizations from friendly jurisdictions with existing DTAs can expect taxation under the provisions of such agreements.
At the same time, transitional provisions are provided for a number of incomes until December 31, 2025, under which the following types of income of foreign organizations will not be subject to withholding tax provided that there is no interdependence:
Source: Federal Law of 27.11.2023 No. 539-FZ “On Amendments to Parts One and Two of the Tax Code of the Russian Federation, Certain Legislative Acts of the Russian Federation and Recognition of Certain Provisions of Legislative Acts of the Russian Federation as null and void”.
Thus, Article 309 of the Russian Tax Code, which regulates the taxation of income received by a foreign organization from sources in the Russian Federation, adds income received by such an organization from the performance of work (provision of services) in the territory of Russia to an interdependent person.
Works will be considered performed (services rendered) in the territory of the Russian Federation if the buyer of works (services) carries out its activities in Russia, and the place of activities is determined by the place of state registration of the buyer. Thus, the object of taxation will be such services as management, consulting, marketing, engineering, legal support, IT, and so on (the list of services is open). Such intra-group income will be taxed at the rate of 15% (subpar. 4, par. 2, Art. 284).
These changes will primarily affect organizations from the so-called unfriendly countries with which Double Tax Agreements has been suspended. Organizations from friendly jurisdictions with existing DTAs can expect taxation under the provisions of such agreements.
At the same time, transitional provisions are provided for a number of incomes until December 31, 2025, under which the following types of income of foreign organizations will not be subject to withholding tax provided that there is no interdependence:
- interest income paid to foreign banks and export credit organizations;
- income from renting (leasing) aircraft under contracts concluded before March 2022;
- income from the use and granting of rights to use audiovisual works;
- income from the use and granting of rights to use an object of copyright, patent, drawing, model, know-how;
- income from the sale of marine vessels;
- income from international transportation;
- income from leasing out sea vessels.
Source: Federal Law of 27.11.2023 No. 539-FZ “On Amendments to Parts One and Two of the Tax Code of the Russian Federation, Certain Legislative Acts of the Russian Federation and Recognition of Certain Provisions of Legislative Acts of the Russian Federation as null and void”.