Corporate Income Tax in Russia: How It Works

The headline rate and what it is charged on

The standard corporate profit tax rate is 25% (Federal Tax Service, 2025). It is charged on profit, not on revenue: income recognised in the period minus economically justified, documented expenses linked to earning that income. Losses are not simply ignored, but their use is subject to rules and limits that have been adjusted repeatedly, so the carry-forward position should be confirmed with an adviser for the specific year.

A separate range of 0-5% applies within special regimes (Federal Tax Service, 2025). These are not a general option: eligibility is tied to residence in a particular zone, the nature of the activity, the volume of committed capital and, in several cases, to a contract with the state. Outside those regimes the 25% rate is the working assumption.

Do not confuse profit tax with indirect taxes. VAT on domestic sales and imports has been at a standard rate of 22% since 1 January 2026 (Federal Tax Service, 2026). Profit tax and VAT are calculated on different bases, reported on different returns and audited on different logic. A financing decision that looks at one and not the other will produce a distorted number.

• 25% - standard corporate profit tax rate (Federal Tax Service, 2025)
• 0-5% - preferential rates inside special regimes (Federal Tax Service, 2025)
• 22% - standard VAT rate since 1 January 2026, a separate tax (Federal Tax Service, 2026)

Who is treated as a taxpayer

Russian legal entities are taxpayers on their worldwide profit. Foreign companies enter the system in one of two ways: through a Russian subsidiary, which is itself the taxpayer, or directly, if their activity in Russia creates a permanent establishment. A permanent establishment can arise from a fixed place of business, from a dependent agent that habitually concludes contracts on the parent's behalf, or from certain project-based activity that exceeds the time thresholds set in the tax rules. The thresholds and tests are technical, and the fact pattern matters more than the label in the contract.

Where a double tax treaty applies, its permanent establishment definition and its tie-breaker rules take precedence over domestic rules. That is why the honest answer to 'do we have a PE' is almost always 'it depends on the facts and the treaty text'. Once a PE exists, the foreign company registers with the tax authority, files returns and computes taxable profit attributable to that establishment, including an arm's length allocation of head office costs.

A Russian subsidiary is administratively simpler and is the more common structure for foreign groups that intend to hire, lease and invoice locally. It is also the structure that exposes the parent to Russian transfer pricing rules when goods, services, financing or intellectual property move between them.

Building the tax base: what is deductible

The tax code sets an open list of deductible expenses, meaning a cost does not have to appear on a named list to be deducted, but it must be documented, economically justified and connected to income-generating activity. In practice, disputes concentrate on three areas: whether the business purpose is properly evidenced, whether the counterparty is real and can be verified, and whether the price is at arm's length.

Related-party transactions and certain controlled transactions between Russian and foreign group companies fall under transfer pricing rules. They require comparability analysis and, above a certain scale, documentation and reporting. The scale thresholds are set by law and can change; the safe operating assumption is that intercompany management fees, royalties, loans and cost-plus service charges will be examined and must be supported by a file, not just by an invoice.

Tax losses can be carried forward, but the offset against a given year's profit is capped, and the cap has been revised more than once. Interest deductions on related-party debt are subject to thin capitalisation rules, and interest generally must be benchmarked against market conditions, an issue that is more visible when the Bank of Russia key rate stands at 14% (Bank of Russia, Sep 2026).

• Expenses must be documented, justified and linked to income
• Intercompany pricing must be at arm's length, with a documentation file
• Loss carry-forward offsets are capped and the caps change - verify for the year
• Related-party interest is subject to thin capitalisation limits

Where the 0-5% rates come from

Low profit tax rates in Russia are attached to geography and to commitment, not to the sector alone. A company that becomes a resident of a special economic zone, an advanced development territory or the Arctic Zone accepts obligations on investment volume, activity type and reporting in exchange for a reduced rate and, usually, reduced social contributions. The trade-off is real: exit from the regime triggers clawback of benefits in many cases.

Special investment contracts are the contract-based route. There are 90 such contracts in force with more than ₽2 trillion of declared investment (Government of Russia, 2025). The mechanism fixes tax and regulatory conditions for the life of the project in exchange for localisation commitments, and it is signed with federal and regional authorities jointly.

Other zone-based instruments co-exist: the Free Port of Vladivostok, with 2,130 projects (KRDV, 2026), the Arctic Zone, with 1,000 residents and ₽1.1 trillion declared (KRDV, Dec 2025), and the special administrative regions, with 674 companies registered (Ministry of Economic Development, 2025). Each has its own eligibility test. None of them is automatic on incorporation.

• 0-5% applies inside special regimes, not across the economy (Federal Tax Service, 2025)
• 90 special investment contracts, ₽2T+ investment (Government of Russia, 2025)
• Free Port of Vladivostok: 2,130 projects (KRDV, 2026)
• Arctic Zone: 1,000 residents, ₽1.1T declared (KRDV, Dec 2025)

Advances, returns and the compliance calendar

Profit tax is paid during the year, not only after it. Companies pay monthly or quarterly advances based on prior-period results, with the frequency depending on revenue levels and on status. Thresholds for quarterly reporting have been adjusted over time, so the applicable frequency should be confirmed for the current year rather than assumed from an older filing.

Reporting is quarterly with an annual return, and the final liability is reconciled at year end. Advance payments that exceed the final calculated tax are set off or refunded through a defined administrative process. Penalties for underpaid advances accrue on the shortfall, which is why a mid-year forecast that is materially wrong is a cash cost, not just a reporting issue.

Two operational points are worth building into the process from day one. First, the currency of accounting is the ruble, so exchange differences on foreign-currency contracts flow through the tax result, and volatility in the ruble has a direct tax effect. Second, documentation must exist at the time of the transaction. A tax file assembled two years later during an audit rarely survives scrutiny.

Paying a foreign parent: withholding and approvals

Dividends, interest, royalties and certain service payments made by a Russian company to a foreign entity are generally subject to withholding tax deducted at source by the Russian payer. The applicable rate depends on the type of income and on the double tax treaty between Russia and the recipient's country of residence. It is not a single number, and it changes with treaty renegotiation, so it must be verified for the specific jurisdiction and payment type before a distribution is planned.

To claim a treaty rate, the recipient normally has to provide documentary proof of tax residence and, in some cases, additional information on beneficial ownership. Russian payers have become considerably more demanding on this point. Expect requests for apostilled certificates, translations and substance evidence about the recipient entity.

Investors resident in countries designated as unfriendly face additional layers: income and capital movements may be routed through special account regimes, and certain transactions and distributions require government approval. Strategic sectors require approval under Law 57-FZ. None of this is advisory terrain for a general article; compliance and structuring should be reviewed with independent counsel in both jurisdictions.

An order of steps for a foreign group

For a group setting up or restructuring Russian operations, the practical sequence tends to be: confirm whether activity will create a permanent establishment or a subsidiary; check the treaty position on permanent establishment and on withholding; model the effective tax on both profit and distributions, not just the 25% headline; confirm whether any zone or contract regime is genuinely accessible given the investment commitment; build the transfer pricing file alongside the first intercompany invoice, not after; and establish the advance payment calendar before the first reporting period closes.

Two supporting facts are worth keeping in the model. Domestic payment infrastructure is now largely settled in local and friendly-country currencies, with 86% of exports settled in rubles and friendly-country currencies (Bank of Russia, 2025), which reduces but does not eliminate settlement risk. And 75% of FDI currently comes from friendly countries, against 25% before (UNCTAD via Izvestia, 2025), so the peer set of comparable investors has shifted, and so have the structures that counterparties are comfortable with.

Tax outcomes in Russia depend heavily on facts, documentation and timing, and the rules on rates, thresholds, caps and carry-forward periods change. Treat every figure here as a starting point for a conversation with a qualified tax adviser, not as a computation.

• Step 1 - determine PE or subsidiary, and check the treaty
• Step 2 - model profit tax and withholding together
• Step 3 - test eligibility for any 0-5% regime honestly
• Step 4 - prepare transfer pricing support with the first transaction
• Step 5 - fix the advance payment frequency and calendar
• This is general information, not investment or legal advice.

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