Control Over Transaction Prices for Tax Purposes

Tax authorities have the right to control the accuracy of transaction prices in the following instances:
     -Transactions between related parties;
     -Barter transactions;
     -Foreign trade transactions;
     -When prices deviate by more than 20% from those used by the taxpayer for similar goods (work, services) over a short period of time.

Individuals or entities are regarded as related parties for tax purposes if the relationship between them can directly influence the conditions or economic results of their activities or the activities of entities/persons they represent.

If the tax authorities believe that prices applied by related parties deviate from market prices by more than 20%, the tax authorities may require that taxes or fines be additionally accrued as if the results of these transactions had been assessed on the basis of market prices.

Free Economic Zones

A free economic zone is an area or areas in St. Petersburg or an area administratively accountable to St. Petersburg where certain resident businesses are provided with tax and other concessions.

This law provides for four different types of zones:
     -production zones;
     -public housing zones;
     -trading and exhibition zones; and
     -other types of zones.

Production zones are aimed generally at the production of consumer and industrial goods for international and domestic markets.

Public housing zones are intended for the creation of housing complexes and buildings.

Trading and exhibition zones are intended for the storing, sorting, packing, marking and processing of import-export goods and for organising exhibitions, fairs and wholesale and retail trade.

The zones may be established at the request of both Russian and foreign companies as well as individual entrepreneurs.

A proposal to establish a zone must be submitted to the Committee on the Economy, Industrial Policy and Investment. This Committee has been authorised by the Administration of St. Petersburg to take decisions regarding the organisation of zones, to establish conditions for granting concessions and to resolve other issues related to free economic zones within the juris-

In addition, a 1% contribution to the Pension Fund is withheld from the employee's salary. As of 2000, companies are also obliged to contribute employment accident insurance payments to the Social Fund. The insurance rates depend on the industrial economy category and on the degree of professional risk involved.

Presently legislative authorities are considering the possibility of establishing a single social tax which would replace all the existing mandatory payments to the various funds.

Withholding Tax

Income paid by a Russian company to a foreign legal entity that does not engage in activities in Russia through a permanent establishment is subject to withholding tax. The withholding tax rate depends on the nature of the income earned. Income generated from freight is taxed at a rate of 6%, dividends and interest at 15% and other types of income are taxed at a rate of 20%

The tax is withheld in the currency of the payment every time a payment is made. Withholding tax may not have to be paid or may be reduced in accordance with the conditions of international double tax treaties concluded between the Russian Federation and other countries.

Control Over Transaction Prices for Tax Purposes

Tax authorities have the right to control the accuracy of transaction prices in the following instances:
     -Transactions between related parties;
     -Barter transactions;
     -Foreign trade transactions;
     -When prices deviate by more than 20% from those used by the taxpayer for similar goods (work, services) over a short period of time.

Individuals or entities are regarded as related parties for tax purposes if the relationship between them can directly influence the conditions or economic results of their activities or the activities of entities/persons they represent.

If the tax authorities believe that prices applied by related parties deviate from market prices by more than 20%, the tax authorities may require that taxes or fines be additionally accrued as if the results of these transactions had been assessed on the basis of market prices.

FREE ECONOMIC ZONES

A free economic zone is an area or areas in St. Petersburg or an area administratively accountable to St. Petersburg where certain resident businesses are provided with tax and other concessions.

This law provides for four different types of zones:
     -production zones;
     -public housing zones;
     -trading and exhibition zones; and
     -other types of zones.

Production zones are aimed generally at the production of consumer and industrial goods for international and domestic markets.

Public housing zones are intended for the creation of housing complexes and buildings.

Trading and exhibition zones are intended for the storing, sorting, packing, marking and processing of import-export goods and for organising exhibitions, fairs and wholesale and retail trade.

The zones may be established at the request of both Russian and foreign companies as well as individual entrepreneurs.

A proposal to establish a zone must be submitted to the Committee on the Economy, Industrial Policy and Investment. This Committee has been authorised by the Administration of St. Petersburg to take decisions regarding the organisation of zones, to establish conditions for granting concessions and to resolve other issues related to free economic zones within the juris- diction of the Administration of St. Petersburg.

The decision to establish a zone shall be adopted in the form of a Law of St. Petersburg. This law approves the Regulations of the zone and describes the conditions under which concessions are granted.

The Governor or other person authorised to initiate a law must submit a draft of the law to the Legislative Assembly of St. Petersburg.

The Procedure for Obtaining Zone Resident Status

Zone resident status may be granted both in an already existing zone and when a zone is being established. When a zone is being established, resident status is granted in accordance with a list stipulated by zone Regulations. This is done after a law establishing the zone has been adopted and a contract with the Administration of St. Petersburg on engaging in business activities in the zone has been signed.

In an existing zone, resident status is granted after a candidate's application has been considered and a contract with him has been concluded.

Tax Privileges for Zone Residents

Privileges for zone residents are stated in the Law of St. Petersburg establishing that zone. Thus, tax privileges are established separately for each zone.

As an example, the tax privileges granted to residents of the Polustrovo and Gavan zones are as follows:

Residents of the Polustrovo Zone are exempted from the following taxes and payments from 1996 to 2000:
     -local profit tax;
     -property tax;
     -vehicle acquisition tax; and
     -local payments for land.

Residents of the Polustrovo Zone, from 2001 to 2005, arc granted a 50% reduction with regard to the following taxes and payments:
     -local profit tax;
     -vehicle acquisition tax; and
     -local payments for land.

Residents of the Gavan Zone arc granted 50% tax exemptions on the following taxes for ten years:
     -local profit tax;
     -property tax; and
     -land tax.

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