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“Taxation of intellectual property, research & development in Russian Federation”

From the speech you will know as follows: 1.The taxation of intellectual property and research & development; 2.Peculiarities of taxation of foreign entities; 3.Special features of Value added Tax (VAT); 4.Income Tax: permanent establishment or tax agent; 5.Personal Income Tax: incentives and preferences.

Today's Tendencies: Currently, a possibility of modernizing the Russian economy by stimulating innovation activities in our country is being actively discussed. And tax incentives of the scientific and technology development activities of companies is recognized as one of the main conditions of forming the efficient innovation environment. Support of the innovation activity was reflected in a number of changes of the tax legislation.

Trademarks, patents and copyrights Russia is a party to all major international agreements and conventions on intellectual property. From 1 January 2008, Chapter IV of the Civil Code of the Russian Federation came into force. It covers patents, trademarks and copyright issues, and replaces all previous legislation in these areas.

Trademarks, patents and copyrights The Civil Code of RF codifies provisions of intellectual property law, introduces legal terminology and new intellectual property rights and generally strengthens protection of intellectual property rights. Russian civil law also regulates the legal protection and use of inventions, utility models, works of science, literature and art, programs for electronic computers, useful models, know-how, commercial designations (brands) and etc.

Value-added tax (VAT)

When foreign company should pay VAT? Operations are the object of taxation for the VAT only in case when the location of the buyer of works/services is Russia. Local company should withhold VAT and pay it to the budget. The tax rate is equal to 18% VAT

Object of taxation for the VAT: 1) Transferring and granting patents, licenses, trademarks, copyrights or other similar right; 2) Rendering services (performance of works) on developing programs for computers and databases (software tools and information products of computer aids), their adaptation and modification; 3) Rendering consulting, engineering services*, services on data processing and also Research and Development works. VAT

Operations exempted from taxation: 1) Sales of exclusive rights (alienation of rights) as well as sales (transfer) based on the license agreement of rights on using the following results of intellectual activity : inventions, useful models, industrial samples, programs for electronic computers, databases, integrated circuit, topographies, production secrets (know-how). 2) Performance of R&D works at the expense of budgets and funds of the Russian Fundamental Research Fund, Russian Technological Development Fund and non-budgetary funds of ministries, authorities, associations formed for these purposes in accordance with the Russian Federation law; performance of R&D by education institutions and scientific organizations on the basis of economic contracts. VAT

Operations exempted from taxation: 3) Performance by companies of R&D and technologic works relating to creation of new products and technologies or improvement of products and technologies if the research, development and technologic works include the following types of activity: - elaboration of an engineering object or technical system design; - development of new technologies, i.e. methods of uniting physical, chemical, technologic and other processes with labor processes into an integral system manufacturing new products (goods, works, services); -creation of experimental, i.e. not having certificates of compliance, samples of machines, equipment, materials having principal peculiarities characteristic of innovations and not designed for sales to third persons; their testing for the period necessary for obtaining data, accumulation of experience and recording data in technical documentation; VAT

Tax deductions: A foreign legal entity may be the VAT payer and have the right for tax deductions only in case of carrying out entrepreneurial activities through a permanent establishment in the RF territory which is registered with the Russian tax authorities. VAT

INCOME TAX

WHO PAYS an INCOME TAX? Permanent establishment Earned income from Russian sources Foreign company: Pays by itself Tax agent

Company doesn’t pay tax when get grants The grants - are funds or another property if their transfer (obtaining) complies with the following conditions: - grants are given on a non-repayable and irreparable basis by Russian individuals, non-profit institutions and foreign and international companies/associations, included in the list of such companies approved by the Russian Government, for realization of concrete programs in the field of education, art, culture, population healthcare, environment protection, protection of rights and freedoms of the person and the citizen under the Russian Federation law, social service of the disadvantaged and not socially protected categories of citizens as well as for making concrete scientific research; - grants are given on conditions determined by a grantor, and a report on intended use of the grant is obligatorily presented to the grantor. Grants

Expenses -expenses on research and (or) development relating to creation of new products or improvement of the manufactured products (goods, works, services) are recognized for taxation purposes after these R&D works (separate stages of works) are completed and acceptance reports are signed by the parties. - expenses on research and/or development executed with the purpose of creation of new products or improvement of applicable technologies, creation of new types of raw and other materials which did not give a positive result are also subject to their uniform inclusion in expenses.

Expenses - expenses on research and development (including those that did not give a positive result) incurred by taxpayers- companies registered and working in the territories of special economic areas set up in accordance with the Russian law are recognized in the reporting (tax) period when they were incurred in the amount of actual costs. - the above-mentioned expenses on R&D development (including those that did not give a positive result) according to the list established by the RF Government* are recognized in the reporting (tax) period when they were incurred and included in expenses in the amount of actual costs with a ratio 1.5.

Foreign company has the right to return paid taxes from the budget DOCUMENTS: Written request about your wish to return taxes Document confirming permanent residence of foreign company Copy of a contract Documents confirming tax payments by the Russian partner A foreign company can ask to return taxes within 3 years from the moment the taxes were paid.

Personal Income Tax

Taxpayer can have a compensation of his educational coasts. While calculating the tax base the following categories of tax payers are entitled to obtaining professional tax deductions: tax payers receiving authors' remunerations or fees for creation, performance or other usage of works of science, literature and art, remunerations to authors of discoveries, inventions and industrial samples in the amount of virtually incurred and documented expenses. If these expenses cannot be documented (confirmed by documents) they are deductible in appropriate amounts.

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