The Building Company Taxation in the Russian Federation
When carrying out works at building site on the territory of the Russian Federation, the foreign building Company may act as a General Contractor as well as a Sub-contractor. In the latter instance the Company’s activity may lead to the constant representative office formation, in case if:
- the total duration of subcontract works makes not less than 30 calendar days;
- the General Contractor has got a constant representative office in Russia (paragraphs 3,4 point 2 article 308, the Tax code of the Russian Federation)
Time of beginning and end of works at construction site are determined by dates, jointly fixed by the Property Developer’s and Contractor’s representatives in minutes or in other document, provided by the Contract conditions. Now therefore, it may be the date of signing an act of transfer of site to the Contractor – the Foreign building company.
However, it is necessary to take into account, that the duration of works at construction site includes the time period during which work is performed by Company at the site (par. 1 p.2 art. 308, Tax code of the Russian Federation):
- preparation works, including works on construction of approach roads, communications, electric cables, drainage and other infrastructure, except for those, which were built for other purposes, not connected with the given site;
- building and assembly works, directly connected with the construction site, it’s reconstruction, assembling, installation, etc
The duration of works completed by the foreign Contractor – General Contractor at the construction site includes the time period during which part of work is performed by Sub-contractors (par. 1 p.2 art. 308, the Tax code of the Russian Federation):.
In case if the Sub-contractor carries out works under the Contract, made directly with the Property Developer – the Russian Company, and these works are not included into volume of work ordered to the General Contractor – the foreign building company, then the duration of executed works is not included into the time period of work performed by the foreign Company –General Contractor (par. 2 p.2 art.308 the Tax code of the Russian Federation).
The exception from this rule is the case when the General Contractor and the Sub-contractor are related parties in accordance with the article 20 of the Tax code of the Russian Federation. In this case the time period spent by the Sub-contractor is considered the time spent by the General Contractor as well (par.2 p.2 art.308 the Tax code of the Russian Federation). Consequently, it leads to the formation of the constant representative office of the General Contractor
The completion of works at the construction site is considered (par. 2 p.3 art.308 Tax code of the Russian Federation):
- for the General Contractor – the date of signing the work completion certificate (range of works provided herein) by the Property Developer;
- for the Sub-contractor - the date of signing the work completion certificate by the General Contractor.
In case if the work completion certificate is not signed or the works end after signing such a certificate, the work completion date for the General Contractor as well as for the Sub-contractor is the date of the actual work completion at the construction site.
Computation and payment of taxes at the work performance at the construction site
In case if the construction site operation leads to the formation of the constant representative office, the Foreign company should calculate and pay the profits tax in the manner, prescribed for the constant representative office.
It is understood that it is necessary to take into account that the Foreign company should calculate and pay the first profits tax for the accounting period, at which the time of the actual operation of the construction site exceeds the date – as provided in the double taxation convention, 12 months as a rule.
During the time, provided in the double taxation convention thereof, when the operation of the construction site does not lead to the formation of the constant representative office, the Foreign company itself does not calculate and pay the profits tax.
According to p.1 art. 289 of the Tax code of the Russian Federation profits tax payers shall deliver tax returns at the end of each accounting and taxable period into local tax authorities in the manner, prescribed by the Tax code of the Russian Federation irrespective of their tax liability and (or) advance tax payment, of peculiarities of the computation and payment of taxes.
It is provided as well by the instruction on filing profits tax, version 2004, that tax returns are filed by all foreign companies, carrying out activities in the Russian Federation, and hereby only necessary in the given case section of return are filed and delivered.
Consequently, foreign company, carrying out activities on the territory of the Russian Federation (including those, which work at the construction site) shall deliver the profits tax return of the foreign company under the provisions of the double taxation convention into tax authority, where it is registered for tax purposes in the manner, prescribed by the Tax code of the Russian Federation, regardless of the fact that their activity leads to the formation of the constant representative office of this company on the territory of the Russian Federation or not.
Therefore, the Foreign building company shall deliver tax return into the tax authority for the location of activity. And herewith in lines D1, D2, D3 section 7 “Computation of the sum of the profits tax” of the return zeros are put in. In the table for indicating the regulatory legal act requisites the specific international contract (Agreement) is indicated, setting the term, during which the activity at the construction sites does not form the constant representative office.
It is necessary to take into account that the calculation of the first payment of the profits tax shall be done on the basis of the total volume of works, completed from the beginning of the construction site operation. In other words at dividing the tax basis into incomings and expenses, connected with the construction site operation, the sums of incomings (expenses), earned (incurred) from the beginning of the works at the construction site, shall be included
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