Income tax for foreign organizations: clarifications from the Ministry of Finance
On July 22, 2025, the Russian Ministry of Finance clarified in letter No. 03-03-06/1/70804 the procedure for taxing the profits of foreign companies receiving income in Russia. Although the Ministry of Finance does not provide advice on specific business situations, the letter contains important provisions of the Tax Code of the Russian Federation that should be taken into account by businesses with foreign participation.
Who is recognized as an income tax payer
According to paragraph 1 of Article 246 of the Tax Code of the Russian Federation, foreign organizations become income tax payers if:
• they operate in Russia through a permanent representative office;
• or receive income from sources in Russia, even without establishing a representative office.
How the object of taxation is determined
• If there is a permanent representative office: income received through it is taxed, less confirmed expenses (Article 247 of the Tax Code of the Russian Federation).
• If there is no representative office: all income from Russian sources, as defined in Article 309 of the Tax Code of the Russian Federation, is subject to taxation.
What constitutes a “permanent establishment”
The concept is defined in Article 306(2) of the Tax Code of the Russian Federation. It may be a branch, office, agency, or other separate subdivision through which a company regularly conducts business in Russia.
Features of establishing a representative office
If the activities of a foreign company actually lead to the establishment of a permanent establishment, the taxation procedure is determined in accordance with the rules of Article 307 of the Tax Code of the Russian Federation.
Business advice: foreign companies must carefully assess the nature of their activities in Russia. Even the absence of a registered branch does not exempt them from income tax if the income is generated from Russian sources.
If your company works with Russian contractors or is considering entering the Russian market, it is important to determine the tax implications in advance. Consulting with specialists will help you avoid the risks of double taxation and penalties.
