Russian Federation

Russia has undergone significant changes since the collapse of the Soviet Union, moving from a centrally planned economy towards a more market-based system. Both economic growth and reform have stalled in recent years, however, and Russia remains a predominantly statist economy with a high concentration of wealth in officials' hands. Economic reforms in the 1990s privatized most industry, with notable exceptions in the energy, transportation, banking, and defense-related sectors. The protection of property rights is still weak, and the state continues to interfere in the free operation of the private sector.

Russia is one of the world's leading producers of oil and natural gas, and is also a top exporter of metals such as steel and primary aluminum. Russia is heavily dependent on the movement of world commodity prices as reliance on commodity exports makes it vulnerable to boom and bust cycles that follow the volatile swings in global prices. The economy, which had averaged 7% growth during the 1998-2008 period as oil prices rose rapidly, has seen diminishing growth rates since then due to the exhaustion of Russia’s commodity-based growth model.

A combination of falling oil prices, international sanctions, and structural limitations pushed Russia into a deep recession in 2015, with GDP falling by close to 2.8%. The downturn continued through 2016, with GDP contracting another 0.2%, but was reversed in 2017 as world demand picked up. Government support for import substitution has increased recently in an effort to diversify the economy away from extractive industries.

Justice is administered in the Russian Federation only by courts. The judicial power is self-dependent and acts independently from the legislative and the executive powers. Justice is administered in the forms of constitutional, civil, administrative and criminal proceedings.

The judicial system of the Russian Federation is established by the Constitution of the Russian Federation and the Federal Constitutional Law “On the Judicial System of the Russian Federation” of December 31st, 1996.

In February 2014, in order to strengthen public trust in the judiciary, modernize the judicial system and ensure a unified approach to the resolution of disputes between legal as well as private persons, a Law on the amendment to the Constitution of the Russian Federation “On the Supreme Court of the Russian Federation and the State Prosecutor’s Office of the Russian Federation” was adopted. As a result, the Supreme Court of the Russian Federation, heading the system of courts of general jurisdiction, was merged with the Supreme Commercial Court of the Russian Federation, heading the system of commercial courts, to form a new Supreme Court of the Russian Federation, which is now the highest court for civil, administrative, criminal cases, cases on the resolution of economic disputes and other cases.

Currently, Russia’s judicial system is composed of the Constitutional Court of the Russian Federation, the Supreme Court of the Russian Federation, federal courts, constitutional (charter) courts and justices of the peace of constituent entities of the Russian Federation.

Judges of the Constitutional Court of the Russian Federation and of the Supreme Court of the Russian Federation are appointed by the Federation Council of the Federal Assembly of the Russian Federation on proposal of the President of the Russian Federation. Judges of federal courts are appointed by the President of the Russian Federation. Judges of constitutional (charter) courts and justices of the peace of constituent entities of the Russian Federation are appointed in accordance with the legislation of the respective constituent entities.

Taxation

Companies are required to register with the Russian tax authorities, which will also include registration with the Russian Social Security Fund. Documents for state registration should be prepared and submitted to the local Tax Inspectorate in accordance with Chapter 12 of the August 8, 2001 Federal Law on State Registration of Legal Entities. An authorized legal entity, the Moscow Department of Russia’s Ministry of Finance (15, Tulskaya Street, Moscow), provides counseling to businesses on registration procedures and documents.

Tax Code

Major revisions to Russia’s tax code took place from 1999 to 2003. The resulting tax legislation more closely matches the needs of a growing market economy, and many provisions that distorted Russia’s 1990s-era business environment and kept many businesses in the shadow economy were removed.The most fundamental changes of the new chapters of the Tax Code’s Part II affected the value added tax, excise taxes, and individual income tax. These changes aimed at improving Part II of the Russian Tax Code were passed by the Duma and enacted in 2003. Ongoing tax reform has further improved procedural rules and reduced the overall tax burden in the country.

Profits Tax

The profits tax is levied on net profits. The standard profits tax rate is 20% (17% is allocated to regional Russian authorities and 3% to federal). The regional authorities may, at their discretion, reduce the regional profits tax to a rate as low as 12.5%. The tax rate was reduced in tandem with the introduction of more generous definitions of deductible expenses, the combined impact of which was to significantly reduce the profit tax burden and stimulate the Russian economy following its late 1990s financial downturn. 

The provisions on profit taxation enable foreign companies operating in Russia to benefit from the reduced withholding tax rates and exemptions under Russia's double taxation treaties (the United States and Russia instituted a double taxation treaty in 1992), which could be advantageous for U.S. companies in certain cases. For example, representative offices are permitted to deduct expenses incurred on their behalf by a parent company located abroad.