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February 24, 2021
2021-0421

Russia | Requirements for 2020 annual tax reports of foreign companies operating in Moscow

Moscow Interdistrict Tax Inspectorate No. 47 has issued a letter setting out the procedure for the preparation and submission of reports for 2020 by foreign companies operating in Moscow (the Letter).1

Annual tax reports due from foreign companies include a profits tax return, an annual statement of activities prepared in the officially prescribed form,2 and an explanatory note to the annual statement of activities (Explanatory Note). This set of reports must be filed no later than 29 March 2021.3

Who must file profits tax returns and an annual statement of activities?

Foreign companies registered to carry on activities in Russia must file a profits tax return and a statement of activities even if they did not have financial and economic activities in 2020.

Taxpayers that carry on activities in Russia via a permanent establishment must complete sections one to nine of the profits tax return. Foreign companies that have divisions but do not carry on business activities in Russia through them must complete sections one to three of the return.

The Explanatory Note and other documents

Although the Explanatory Note to the annual statement of activities is not a mandatory part of the reports and does not have to be submitted to the tax authority, taxpayers should consider filing this report on an annual basis to minimize potential questions from the tax authorities.

Specifically, the taxpayer must provide information on the name of the company, the type of activity carried on by the company both in its country of incorporation and via its representative office/branch in Russia, details of contracts and itemized information on income and expenditure of the representative office/branch. There is also a requirement to describe the methods used to calculate income and expenditure where a representative office/branch participates in the performance of the parent company's contracts and where a company's worldwide income is allocated to divisions located in different countries or different regions of Russia.

The company must also disclose activities of a preparatory and auxiliary nature on behalf of third parties, if any such activities took place.

It is stated in the Letter that supporting documents for expenses that were incurred abroad and allocated to the division must be kept at the Moscow division and presented to the tax authorities if requested.

The questions and requirements contained in this year's Letter are broadly the same as in previous years, but there are certain differences compared with last year.

Key changes

The Letter contains certain changes to the requirements regarding information to be disclosed in the Explanatory Note and a number of adjustments in relation to other tax reporting forms.

The following items have been excluded from the disclosure requirements for the Explanatory Note:

  • The requirement to give information on other divisions in other regions of the Russian Federation
  • The requirement to give details of the foreign company's operating arrangements in the territory of Moscow, including a list of all codes of reason for registration assigned by the inspectorate for any divisions (construction sites) that the company might have

The Inspectorate also draws attention to the following points:

  • Budget classification codes for local budgets are not to be entered in returns.
  • A foreign company that has independently declared itself a tax resident of the Russian Federation must submit a profits tax return to the Inspectorate in the same form as Russian companies.
  • The requirement to file transport tax and land tax returns has been abolished from 1 January 2021 for the 2020 tax period onwards.4
  • A document containing information on income of individuals for the tax period that has ended and amounts of tax calculated, withheld and remitted to the budget must be submitted not later than 1 March of the year following the tax period that has ended. For the 2021 tax period onwards, that document must be filed as a part of the calculation of amounts of personal income tax calculated and withheld by a tax agent (Form No. 6-NDFL).
  • The calculation of amounts of personal income tax calculated and withheld by a tax agent for the first quarter of 2021 and subsequent tax periods is to be filed in the form approved by Federal Tax Service Order No. YeD-7-11/753@ of 15 October 2020.
  • Starting with reports for 2020, payers of social contributions that make payments and other remunerations to individuals must submit information on the average number of employees as part of the calculation of social contributions.
  • Notifications of participation in foreign organizations and notifications of controlled foreign companies are to be submitted only by foreign companies that are tax residents of Russia.5
  • A higher personal income tax rate of 15% is introduced from 1 January 2021 for income received by individuals in excess of 5 million rubles for the tax period. This change does not apply to income from the sale of property or interests in property, income from property received as a gift or amounts received in the form of insurance payments or pensions.
  • The bank details for the payment of taxes and levies have changed from 1 January 2021.6

Notification of controlled transactions

The notification for 2020 is to be submitted not later than 20 May 2021 in the form approved by Federal Tax Service Order No. MMV-7-13/249@ of 7 May 2018. Taxpayers are obliged to notify the tax authorities of controlled transactions concluded by them of the kinds referred to in Article 105.14 of the Tax Code. Unlawful failure to submit a notification of controlled transactions on time attracts a fine of 5,000 rubles. If a taxpayer discovers errors or omissions in its notification, it may submit a revised notification.

Abolition of the offset mechanism for the payment of social contributions

As from 1 January 2021, benefits accruing in respect of mandatory social insurance throughout the Russian Federation will be awarded and paid directly by local bodies of the Social Insurance Fund via a direct payment mechanism. The offset mechanism is abolished from 1 January 2021, and contributions must be paid to the Fund in full without deducting expenses.

EY has the experience to assist taxpayers with:

  • Preparation of tax reports
  • Maintenance of tax records
  • Review of tax status and checking of tax returns
  • Review and determination of the correct tax base
  • Reconciliation with the tax authorities

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For additional information with respect to this Tax Alert, please contact the following:

Ernst & Young, Moscow

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ENDNOTES

1 Letter No. 07-12/01021 of Moscow Interdistrict Inspectorate No. 47 of the Federal Tax Service of 28 January 2021.

2 Order No. BG-3-23/19 of the Ministry for Taxes and Levies of 16 January 2004.

3 Since 28 March 2021 falls on a weekend, the filing deadline is transferred to the next working day, i.e., 29 March 2021.

4 Federal Law No. 63-FZ of 15 April 2019.

5 Clause 1 of Article 25.14 of the Tax Code.

6 Section XIV of the Letter.

 

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