Tax optimization (Tax structuring)

The tax burden of an average Russian entity usually equals to 44-45% of its turnover. Accordingly this brings up the question of what profitability should the company have to cover at least the tax costs, not to speak of gaining the profit or surplus profit.

Developing a tax optimization projects we are governing by Russian and international legislations in force which are maximally adapted to the Russian business environment and allows the client to maximize his business profitability by a huge ratio.

Our approach to optimization project is comprehensive and includes the following:

Conduction of tax audit, examination of tax optimization schemes used, meeting the requirements of current legislation, identification and minimization of tax and legal risks
Development and implementation of the effective tax optimization schemes, selection of the optimal taxation regulations, reduction of the tax burden
Maintenance of the economic stability when using existing or newly developed schemes, minimization of tax and legal risks
Development of the holdings structures, definition of its optimal organizational and legal form as well as jurisdiction (Russian or non-resident companies)
Elimination of the mutual dependence factors of affiliate structures without sacrificing of the management control mechanisms on the part of business owners
Custody of assets and guarantee of confidentiality of information about its owners
Support and tax advice upon the tax optimization schemes implemented
Provision of the information security of the business

For the effective realization and implementation of these projects we form a project team, which consists of:

Tax Consultant
Auditor
Russian law specialist
International Law specialist
Customs Law specialist

The key elements of the projects on financial and legal schemes development consist of possible variations in project priorities, such as:

Minimization of taxation
Tax risks balance
Provision of business operation safety in terms of control from the oversight authority perspective

The tasks of consulting tax planning projects are always solved in the light of specific features of the clients business, therefore a first step of our work is to conduct a shortcut audit of the previous tax risks (unless the Client by the time of the request had already decided to restructure the business and "start over again", either in respect to start-up projects).

Resorting to us the Client will get:

The evaluation of the risks in the previous periods (1-2 years away back)
The new models of business operation (up to 2-3 models with a couple of sub options in Microsoft Excel program) including the calculations of tax liabilities and the graphic display of business performance options
Step-by-step guidance to the implementation of the developed scheme
Recommendations upon necessary contracts and the companion documents

Our accumulated experience lets us develop the maximum secure schemes of business operation, which have the minimum risk of challenging from the oversight authorities perspective.

We provide tax planning services both in Moscow and other Russian regions as well as within CIS region and abroad.

Why to turn to the taxation expert?

It’s not a secret, that the taxation system of any country, being a fiscal instrument, is first of all aimed to keeping macroeconomic balance. Sometimes chasing after to reach the performance standards discriminates against the "real" economy and all of its composing companies. The level of tax burden ranges depending on a taxpayer form of activity. So, for example, the manufacturing companies, whose added value is mainly formed by salary, pay taxes to the budget in the amount of 48% -61% of the costs incurred.

Taxes, formed mainly by the salary are listed below:

Insurance contributions – 30%
VAT – 18%. Due to the fact that full service companies does not have VAT receivable, the added value, which is formed by salary, becomes VAT output in a whole amount
Personal income tax – 13%. Due to the high competition on a labor market, a settlement of personal income tax, which is an obligation of the employee, may partly or fully fall on the employer

The tax burden of an importing companies is also unbalanced – the example below can show that:

The Company imports goods valued at 1000 USD. The Company pays the import VAT in the amount of 180 USD (the customs duty is not considered). Further after the sale of goods this VAT will be deductible. Let’s assume that the goods were sold at 1500 USD, including VAT 228,81 USD (with a settlement rate of 18/118). VAT payable in this case would be 48,81 USD (= 228,81 — 180). However, the cash tax expense for the entity would be much higher, as in fact the Company will pay VAT levied not on the value added but on the turnover of 180 + 48.81 = 228.81 USD.

Under current conditions and aggressive competitive environment the company cannot actually set the prices for its goods, works or services on “price + VAT” basis, as it is prescribed by the Russian Tax Code. And in practice VAT in the amount of 15% (at a settlement rate “include” = 18/118) is paid by the seller at its sole cost and expense, whereby VAT loses its characteristic as an indirect tax.

Many businessmen face the paradox, when having a loss-making entity they still have to pay income tax.