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MinFin Explains How to Calculate Profit Tax for Representative Offices of Foreign Companies
A letter of the Ministry of Finance was published on February 20, 2007 under #03-03-06/1/104 which details the Ministry's opinion on how business expenses incurred by a permanent representation of a foreign company in the RF should be recorded.
As soon as a foreign company opens a permanent representation in the RF, the company is liable to pay income tax as are all organizations in the RF.
According to the Subsection 3 of Article 306 of the Tax Code of the RF, a permanent representation of a foreign company is considered established from the beginning of regular business activity through its branch office. The activity of opening a branch office is not considered a permanent representation.
If, in fact, business activity has not been started by the branch office (company received no profits), then all the expenses incurred by the representation are considered preparatory and, accordingly, are not included in the income tax accounting.
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