If a Russian company carries out joint activities in Russia with another company (or companies) – whether they are Russian or foreign - the parties must conclude a simple partnership agreement.
The role of the simple partnership in the business world, in our opinion, is underestimated. When entering the Russian market, most foreign companies open a Russian subsidiary LLC or register a representative office (branch). However, a simple partnership offers the same business opportunities as an independent legal entity, and even has advantages in terms of administration (opening and closing the activities).
A simple partnership does not need registration by state bodies nor does it need separate tax accounting, since it is not an independent taxpayer. The partners conclude a contract that determines the initial deposits (analogous to the authorized capital of a legal entity), procedures for dividing incomes, expenses, and duties between the partners. Contributions, in this case, can be not only money or other property, but also professional knowledge and skills, business reputation, business ties, etc.
Property leased by a partner can also be a contribution. By default, partners' contributions are recognized as equal in value, and the income and expenses from the activities of the partnership are distributed proportionally to the deposits.
The simple partnership agreement can provide for a different procedure for dividing income and expenses or give a different assessment of the contributions. Only profits are divided this way in a simple partnership. Losses of the partnership are not distributed among its participants and are not taken into account by them for taxation purposes.
One of the partners is appointed as responsible for maintaining accounting. Participants in the partnership can be both Russian and foreign organizations. Accounting can be conducted by any partner, but the tax accounting must be a Russian partner.
The partner responsible for tax accounting determines the profit from joint activities with respect to each partner, and sends relevant information to the partners. If a foreign company has already formed a permanent representative office in Russia, then such a document from the Russian partner conducting the tax accounting is sufficient: the accountant of the Russian representative office of the foreign organization, receiving information from the Russian partner, will independently submit a declaration to the tax authorities and pay the applicable taxes.
A foreign organization, in signing a simple partnership agreement, is not considered to have formed permanent representation in Russia.
If the foreign organization has no permanent representation in Russia and there is no double taxation agreement between Russia and the country in which the foreign organization is resident, the entity which divides profits should bear in mind that the Russian organization performing the tax accounting is obligated to withhold 20% profit tax on behalf of the foreign organization when sending that organization its share of the profits.
If there is a double taxation agreement and that agreement declares norms other than those found in the Russian Tax Code, it is necessary to adhere to the norms of the Agreement.
Translated by Alinga Consulting Group.
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| ||Source: Журнал «Бухгалтерский учет» (№4)|| |