The world is changing, and so are the rules that govern it. One country organizing its economy to accommodate global conditions is Russia, which has implemented a new law that forces foreign companies to contribute to the budget as they leave. This move could have wide-reaching implications for international business, and has caused a stir among observers.
What Is the New Law?
The new law that has been implemented by Russia is significant in that it requires foreign companies to contribute to the budget of the country as they depart. Effectively, companies that leave Russia and cease their activities no longer require payment of tax, but they must make a lump sum payment equal to the taxes they would have paid had their operations continued.
This new law is set to come into effect from the start of 2021 and is an extension of a similar provision in the Russian Tax Code already in place for natural persons. The motivation is to ensure that those who earn income in Russia seek to contribute to the country’s finances even as they leave.
Who Is Affected?
The law applies to all foreign companies that operated in Russia up until their departure, whether on a permanent or a temporary basis. It does not matter if the activities of the company have concluded or if it had already paid all its outstanding taxes to the government. It must make the lump sum payment before the departure is complete.
It is important to note that the requirements do not apply to those foreign companies that are exempt from taxation in Russia due to certain technical conditions such as those with only one employee, those whose activities are of a charity nature, or those employed in the oil and gas sector.
What Does It Mean for Russia?
When it comes to Russia’s budget, this new law could be significant. It means that companies will no longer be able to evade paying tax owed to the government just because they are leaving the country. As foreign companies are often some of the more significant contributors in the economy, their departure could have had a notable impact on the budget.
The contribution of those leaving to the Russian budget may bring some stability to its finances, as the money generated from this law could easily add up to tens of millions of dollars over the course of a year. Furthermore, such a contribution may even be able to be used to enhance other importantservices in the country such as healthcare and education.
What Does It Mean for Companies?
The impact of the new law on foreign businesses can be quite significant. Not only do they need to factor in the cost of the lump sum payment when departing, but also ensure that all taxes that would have normally been paid had the entity remained in Russia are also accounted for.
The amount due will vary from company to company depending on the length of time the operations have lasted in the country and the kind of activities being conducted. Companies may also be liable for VAT, customs duty, and social security contributions in the event of a departure.
What Does It Mean for International Business?
The introduction of foreign companies needing to pay into the Russian budget as they depart could have ramifications far beyond its borders. It is likely that other countries will start looking at similar measures, particularly ones with a large presence of foreign companies.
An issue exists whereby companies may try to use different tax jurisdictions to pay smaller sums of taxes, and the new law would put a stop to it. Without the ability to do this, businesses may be put between a rock and a hard place in terms of deciding whether or not to invest in foreign markets due to the extra costs involved.
Russia’s new law forcing foreign companies to pay into the budget as they leave is a bold step and a sign of the times. It is intended to help stabilize national finances while also ensuring companies contribute their share even after they move away from the country. It is expected to bring in tens of millions of dollars of income for the state, although for companies, the costs for departing could now be substantial. The move may also spark other countries to adopt similar provisions, making it more expensive for businesses to leave their shores.