Lately, in Tax Free Today we have talked a lot about the superpower, the United States. After all, it is one of the few countries capable of defending itself against the increasingly brazen attempts of the European Union to include any country that does not have sufficient transparency on its tax haven list.
But, we have not paid attention to another superpower that is closer to home for Europeans: Russia. Russia polarises as much as the United States and is either loved or hated, but very few people have a neutral opinion about this large country.
All the same, opinions should have no effect on flag theory. You do not need to like the countries policies to be able to use the advantages they offer.
In this article, we look at Russia’s Flag Theory possibilities. As of now, you have the option to open personal accounts in Russia through our excellent law firm contact in Moscow. Obtaining residency through the HQS visa may also be interesting and not only from a tax point of view. You can benefit from the many advantages of registering and managing your company in Russia.
Setting up a company in Russia, is it worth it?
Undoubtedly, there are better places than Russia to start your business, even so, in some cases this location can be interesting. In Russia, the corporate tax is less than in Argentina, Chile, Spain or Mexico, to name a few examples.
The normal corporate tax rate is 20%, of which only 3% goes to the central government. However, there are certain simplified corporate forms for smaller companies, which have significant tax advantages. The disadvantage is that legal entities can only be shareholders of these companies for up to a maximum of 20% of the capital. Therefore, they are not so appropriate for non-residents, although as capital companies (OOO) they have limited liability. This aspect is relevant due to the 15% withholding tax applied at source, something we will discuss later on.
With a simplified capital company, there are two tax possibilities in Russia. Similar to Romania or Georgia, up to a certain threshold can be taxed based on the volume of sales without the possibility of deducting operating expenses; the other option is the classic taxation based on profits. Up to an annual sales volume of approximately €1.5 million, you can choose to pay taxes based on sales volume. This amounts to just 6% in Russia. On the other hand, taxation on profits (with the possibility of deducting expenses) is 15%. There are no additional local taxes.
Of course, in Russia there is also the option to register as a freelancer (individualni predprinimatel). But unlike Georgia, this can only be done if you have permanent residence in Russia. The same taxation options apply here as for simplified capital companies. However, with permanent residence you will be obliged to make fairly high social security contributions (of almost 30%).
Small companies are always exempt from VAT; services provided by both Russian and foreign companies (attention: taxpayer’s reverse charge mechanism does not apply). If the option of taxation based on profits is chosen, purchases are made including VAT and without the right of deducting the VAT if the supplier includes VAT. For normal companies in Russia, the generic VAT is 20% but many essential items have a reduced VAT of 10%.
Here we should also mention Russia’s withholding taxes. If dividends are distributed to non-residents, 15% is withheld at source. With the help of appropriate double taxation agreements, this withholding can be reduced to 10% and sometimes, even 5%.
It is interesting to mention that, in many double taxation agreements, Russia agrees that, in cases where minimum investments are made, withholdings are lower. For example, for a Cypriot holding company, Russia applies a withholding tax of 10% unless the Cypriot holding has invested at least €100,000 in the Russian company (in this case it would be taxed at 5%). In most countries, conditions are higher. For example, in Austria, it’s 100,000 USD with a 10% minimum stake, in Germany it’s 80,000 EUR with a 10% stake, and in Switzerland it’s 200,000 CHF with a 20% stake (otherwise, the 15% withholding tax applies).
Through our partner based in Moscow, we can help you set-up a simplified company for 2,000 EUR, this includes the opening of a bank account. We would have to add some additional expenses to this for the translation and legalisation of the passport.
If it is a classic capital company (for example, a subsidiary) the cost is 3,500 EUR. Additional costs for the translation of the necessary documents, which generally range between 500 EUR and 1,000 EUR would also be added. Bookkeeping and tax advice expenses vary depending on the volume of sales. If you are interested, just contact us and we will provide you with his contact details.
How to live in Russia all year round with the HQS visa enjoying attractive tax advantages
Usually, it is more attractive to establish a company in Russia if you also move your residence to the country. Then, there is an income tax fixed rate of only 13%. This means that, both salaries and dividends pay only 13%. So, with a simplified capital company, you are left with a total tax burden of 20%.
However, you must not forget social contributions, which nevertheless, can be avoided by having the appropriate visa.
Currently, social contributions are structured as follows: 22% goes to pensions (with an additional 10% if salaries exceed 1,150,000 rubles a year), 2.9% goes to social security (up to 865,000 rubles), 0.2% goes to work disability insurance and 5.1% goes to medical insurance, which all adds up to approximately 30%.
But there is also the HQS visa with a work permit, which allows employers to stay in Russia for a year to incorporate a company. The great advantage here is that the social security contributions mentioned above are eliminated, since these only apply to temporary and permanent residents. You would only have to contribute 0.2% for trauma insurance, which everyone else must also pay.
The HQS visa for highly qualified specialists can not only be obtained if you are hired by a Russian company, but also by setting-up your own (simplified) company. The only noteworthy requirement is that they have to pay you a monthly salary of 167,000 rubles (which is equivalent to about €2,350), which is then only taxed at 13% (income tax rate). In addition, you also need to spend a minimum of 183 days in Russia per year.
All in all, the HQS visa application can be processed through our Moscow partner as follows:
- Setting-up a company + bookkeeping + registered office
- Provisional administration (only if bookkeeping is requested) and, after registering the company, the HQS visa is immediately requested (it takes around 1 month for the immigration office to process it)
- Upon receiving the HQS the founder of the company is appointed as administrator.
The entire process for getting a residence and work permit with the HQS visa costs about 1,800 EUR. The residence permit has an initial validity of 3 years, after which can easily be renewed.
In addition to not paying social contributions, another positive aspect of the HQS status is that as a monetary resident, information obligations are abolished. So, you do not need to annually report on your bank accounts abroad, unlike with a temporary or permanent residence permit.
Therefore, if you want to apply the Flag theory supported by Tax Free, obtaining a temporary or permanent classical residence is not really worth it for entrepreneurs and investors.
Normally, Russia grants citizenship after living in the country for 5 years. But, as a general rule, you must renounce your previous nationality (except for certain agreements with former Soviet States). For this, you need to speak Russian fluently and have regular income.
However, if there is a national interest, this process can be much quicker, as seen in the actor Gerarad Depardieu’s citizenship case.
Russian citizens need an entry visa in the Schengen area, however, it offers a wide variety of 117 countries where no visa is needed.
So, those who want to live in Russia for more than half a year (after all, the country is big enough), have a very advantageous opportunity in regard to taxes with the HQS visa, comparable to other Eastern European countries.
Opening a personal bank account upon arrival in Moscow
Of course it is not mandatory to emigrate in order to benefit from certain advantages in Russia. As in other Eastern Europe countries (see our popular remote account opening in Georgia), there is also the possibility of opening private accounts in Russia regardless of where you live. However, for this you need to travel, at least for one day, to Moscow.
Our partner can help you open a private account at the UniCredit bank or the Raiffeisen Bank, as well as at many others. Preparation/translations can be done remotely, but for the application and card collection you need to go to Moscow.
In general, the UniCredit prime package in Russia is the most recommended, which we will describe here in detail. The price to open an on-site account in Moscow is €700, plus translation costs.
- The passport must be translated into Russian and legalised before a notary in Russia (this is something we do on almost a daily basis)
- Travel to Moscow and register in/through a hotel (this will be the local address used to open the account, usually you will also be asked for a foreign address)
- The forms are delivered in Russian (our lawyers will accompany the client to the bank as translators even though the bank advisor usually speaks English) and the account is opened.
In general, online banking always offers an English option. Account management is free and it offers other advantages when complying with a certain minimum deposit. With Unicredit’s PRIME package, these are offered for a minimum deposit of 3 million rubles (€42,000), and can be viewed here.
- Free money transfers worldwide
- Free withdrawals around the world
- Cash-backs around the world up to a maximum of 10%
- Free access to Business lounges at airports around the world
Interest and cash-backs are paid on a net basis and are much more attractive than in Western Europe. Currently, for deposits made in rubles, the annual interest is 7.25% and is paid monthly. Deposits in US dollars offer an interest of 2.30%.
UniCredit is a large Italian bank and is among the most important banks in the euro zone. Despite its Italian origin, it has relatively good figures and a higher than average equity ratio. Thanks to its strong presence in Eastern Europe and Russia, it also operates in markets where, in the event of an economic and financial crisis, it would be less affected than southern Europe.
After a long period of being a weak currency, the ruble is recovering again. However, those who find this currency too volatile can also keep their deposits in US dollars.
Because it is relatively separate from the Western financial system, Russia is not a bad option to have a bank account that is crisis-proof in. With a public debt of just 16.9%, Russia is more secure than almost all other European countries.
Despite the sanctions, the Russian economy is doing pretty well. At least, the industry is not being heavily penalised, like for example in Germany, with the new wave of energy efficiency, CO2 limitations and so on.
Therefore, Russia is not a bad choice to ensure global diversification. Even if you do not have the status of “monetary resident”, it is currently not difficult to move money to or from Russia, even despite the fact that Russia is not part of the IBAN system.
Protection against seizures is relatively high, although Russia currently shares data with the EU in the automatic information exchange framework. The deposit guarantee in Russia stands at 1.4 million rubles (about €20,000) and has a stable structure.
If you are interested in globally diversifying your assets, do not hesitate to write to us. Whether you want to set up a company in Russia, or if you plan to emigrate with a HQS visa, now is a good time for this, given that Russia is gradually opening its doors to tourism. From 2021, you can also travel throughout the country with only an electronic visa (which is now possible in Kaliningrad and St. Petersburg).
If Russia, as a country, has not convinced you to move, you can buy our emigrant encyclopedia where you can read about more than 60 interesting tax-free countries to live in. Of course, you can also make a consultation with us to analyse your case and find the best way to apply the Flag Theory in your life in order to escape the States burdens.