5 things you need to know if you want to do business with companies from Russia (the 5th thing will shock you!)
Do you do business with companies from Russia as part of your business? Do Russian companies generate any income from you? If the answer is yes, you must know if and when you are obliged to calculate and pay withholding tax and at what rate. Ignorance can cause you incalculable financial and legal problems!
- Legal regulations
Serbia has concluded an agreement on the avoidance of double taxation (“ITA”) with Russia, so in this regard, the provisions of ITA apply to the taxation of income with withholding tax, but under the following conditions:
- First of all, it is of great importance that you understand that you must have a certificate of residence of a Russian company as well as
- proof that the Russian company is the real owner of the income you have paid so that you can apply the provisions of the ITA to a specific case and pay the tax at the benefited rate.
If you do not have the mentioned documents, you will be obliged to calculate and pay tax at the rate of 20% provided by the Act on Corporate Income Tax.
Once we understand that, it is necessary to go through the income for which you are obliged to calculate and pay taxes.
- Dividend income
According to the provisions of the ITA, dividends are considered income from shares or other rights to profit, as well as income from other rights of the company which is tax equal to income from shares in the laws of the state of residence of the company that distributes (which for our needs would be Serbia). It should be noted that for the purposes of taxation of dividend income, the liquidation balance, as well as the surplus from the divided bankruptcy estate, are considered.
When it comes to the tax rate, ITA envisages two beneficial rates:
- a rate of 5% if the final beneficiary is a company that directly owns at least 25% of the capital of the company paying the dividends and which has invested in it at least USD 100,000 or the corresponding amount in the national currency of the contracting state, and
- a rate of 15% for all other cases.
- Interest income
According to the ITA, interest is considered to be income from debts of any kind, regardless of whether they are secured by a pledge and whether the right to participate in the debtor’s profit is acquired on their basis, especially income from government bonds, including premiums and rewards on such securities and bonds.
Interest is not considered legal default interest.
The ITA envisages a single, beneficial rate on interest income, in the amount of 10%.
Pursuant to the provisions of the ITA, royalties mean the payment of any kind of income paid as royalties or for the right to use copyright in a literary, artistic, or scientific work, including cinemas and films or films or television or radio tapes, and for the use or for the right to use a patent, trademark, design or model, plan, secret formula or procedure, or for information relating to industrial, commercial or scientific experience.
In addition to the above, it is important to understand that income for the use or the right to use industrial, commercial, or scientific equipment in accordance with the provisions of the ITA does not represent rental income but royalties and as such are taxed.
ITA envisages a single, beneficial rate for royalties, at 10%.
- Revenues from services
According to the provisions of the ITA, income from services is not taxed! Now we are making a small digression and we return to your obligation to have a certificate of residence of a Russian company and proof that the Russian company is the real owner of the income you paid. As you can see from the example of services, if you have the mentioned documentation, you will not be obliged to pay anything in the name of the tax, and if you do not have the mentioned documentation, you will be obliged to calculate and pay tax at the rate of 20%.
For more info on this or any other legal, tax or business topic, please feel free to write to us at email@example.com at any time OR contact us via telephone number +381113281914 during working days from 08:30 to 16:30