The global economy is becoming increasingly integrated, and many companies are looking for opportunities to collaborate with foreign partners. However, taxation when entering into contracts with foreign organizations can be a complex and important aspect that must be taken into account for successful cooperation.
This article will discuss key aspects of taxation when interacting with foreign organizations.
Place of taxation and tax residents
One of the first issues to consider is determining the place of taxation. This is important to understand what taxes will apply in which country. Tax residency is defined differently in different countries, and this affects tax rates and responsibilities.
What should people pay attention to?
• Different legislation of the two countries.
Any contract is signed taking into account the regulatory framework of the countries in which business is conducted. This inevitably leads to different interpretations of the wording. The same term can be understood in different ways. To avoid contradictions, it is important to take into account the peculiarities of the business culture of the counterparty’s country. It is necessary to speak the same language with partner or use the services of a competent translator.
• Consider the reliability of the foreign company.
It is important to consider the residence of a potential counterparty. There are offshore zones – countries and territories with preferential tax conditions. These include Monaco, UAE, Vanuatu, Cyprus. Transactions with offshore companies are often used to withdraw money abroad, so the Federal Tax Service and the bank will pay special attention to transactions with an offshore counterparty.
It is necessary to study data about the counterparty in advance and assess its reliability. It is important to request documents confirming registration from future partner. To do this, it is possible to contact Valen. Specialists will help to check the counterparty to avoid future problems.
We take into account the source of income and double taxation.
The source of income is the country in which the individual or legal entity receives the income. When collaborating with foreign partners, it is important to consider possible double taxation when the same income is taxed in two countries. To prevent this from happening, double taxation avoidance agreements are concluded between countries.
Double tax treaties are international treaties whose purpose is to eliminate double taxation and ensure the protection of taxpayers’ rights. They contain standard rules for allocating tax liabilities and resolving disputes.
What is important to know about taxation?
When signing an agreement on supplies abroad, the company becomes a payer of export VAT. It is not paid to the budget, since the rate is 0%. The right to it is confirmed by a customs declaration, agreement, as well as accompanying documentation. A Russian company has the right not to apply a zero rate if such a solution is more convenient or profitable.
Importers pay import VAT when importing goods. This amount can be deducted in the future. The rate depends on the type of product or service. For some of them, tax is not paid, for example, for certain groups of medical products and drugs.
After concluding a transaction with a foreign company, the company can become its tax agent. This directly applies to loan agreements or the granting of intellectual property rights. Foreign partners will receive income in the form of interest or royalties. It is impirtant to pay income tax on it for the counterparty. This tax is not paid if there is a double tax treaty between countries.
In international trade transactions, VAT plays an important role. In some cases, it becomes necessary to pay VAT in the country of the supplier of goods or services, and then request a refund of this tax. VAT rules and rates may vary from country to country and require careful consideration.
Withholding taxes at source of payments
In some cases, the source country (for example, when paying dividends, interest or royalties) is required to withhold taxes at source and remit them to the budget. This can significantly affect the final financial results of a business.
Rules for accounting and document flow
Proper record keeping and record keeping is key to tax compliance. Documents confirming business transactions must be correctly executed and stored.
It is important to draw up a contract clearly and competently. All provisions are written taking into account the interests of both parties and in two languages: Russian and foreign. It is important to stipulate in the contract:
- Subject of the agreement. Contains a brief description. It is important to know that certain types of products cannot be imported or exported into the territory of certain countries.
- Price and currency of settlements. It can be rubles or any other currency. In the second case, it is necessary to enter into an agreement to open a foreign currency account in a bank. It is important to remember about currency control.
- Terms of delivery and payments. Must contain the terms and procedure for acceptance and transfer. Also it is necessary to correctly determine the moment of transfer of ownership of the product.
- Frequency of collaboration. Will the operation be a one-time operation or will the cooperation be long-term?
- Responsibility of the supplier and the buyer. It is important to provide for sanctions for non-performance or improper performance of the contract. Usually these are fines.
- Availability of additional services and their prices.
- Other commercial terms. The contract may provide for a discount for the counterparty.
For international contracts, there is a high risk of disruption of deliveries for reasons beyond the control of enterprises. The situation is influenced by the political situation, sudden changes in economic conditions, and changes in laws. Therefore, the contract must pay attention to the procedure for dealing with force majeure situations.
Cooperation with foreign organizations can bring many benefits to a business, but taxation is an important factor that must be carefully studied and taken into account. By analyzing legislation, double tax treaties and accounting rules, companies can successfully conduct business and international cooperation while minimizing financial risks.
The customer of services must notify the Ministry of Internal Affairs about the conclusion or termination of a civil contract with a foreigner if he provides services in Russia. This does not depend on which state he is a resident of. The notice period is 3 business days from the date of conclusion or termination of the contract. Violation of the deadline or an attempt to circumvent the law will entail fines for the official – from 35 to 50 thousand rubles; for legal entities and individual entrepreneurs – from 400 to 800 thousand rubles or suspension of activities for a period of two weeks to 90 days.