The constant changes in the business environment can make business activities hard to plan for managers.

Taxes in Russia are high but some reforms are implemented in order to reduce the amount of taxes paid by companies. During the recent years, the government has put emphasis on reducing regulation and lowering taxes. Depending of the company’s location, the tax can vary. A thorough tax code has recently been implemented including a new VAT law and a new profits tax law. The VAT is quite similar to the EU model, however, input VAT is only recoverable when paid whereas output VAT can be accrued on a cash or accrual basis. The government actions regarding the VAT are mixed. On one hand, the Russian government decided not to apply VAT on certain actions (i.e. inter-company loans or derivatives transactions), but on the other hand, some other fields that were not concerned by VAT are now subject to it (i.e. transfer of patents, trademarks, copyrights). The new Profits tax law is lowering the tax rate to a maximum 24 % and reduced the number of non-deductible expenses.

A representative branch of a foreign business is considered a foreign legal entity. In this case, the company is subject to withholding tax ranging from 10-20 %. A company must perform certain activities as similar to those mentioned in the OECD Model Tax Convention to be subject to the Russian tax on its net income.

On the contrary to the personal income tax rate which is low (13 % in 2004), employers have to pay heavy payroll taxes that reach 38.5 of the employee salaries. This cover pension fund, social insurance fund, medical insurance and employment fund and had to be paid separately so far. Changes are occurring aiming at grouping the payment of the for social taxes altogether and the rate is expected to decrease.

A 30% tax is applied on corporate profits. This rate could be considered as normal when compared to the French one for example but the government has added an « auxiliary » corporate profits tax in order to compensate the losses due to the decrease in taxes over the past few years. This new tax amounts to up to 5% and is to be paid to local governments. In addition, a 1% tax rate is due on the gross turnover. The excise taxes are heavy, especially on alcohol and cigarettes.