Double Taxation for Companies

Double Taxation for Companies

The UK Russia Double Taxation Treaty

During 1994 a convention on taxation was signed by Douglas Hurd and Andrei Kozyrev, the treaty appears to be complex though it needs to be addressed in order to determine where each source of income is taxed. Furthermore, some sources such as dividends and interest could be taxed in both countries, with relief given for tax paid in one country given in the other. The treaty broadly follows the OECD convention, as do most treaties; however, there are some clauses specific to this treaty.

The treaty covers UK income tax and capital gains tax in respect of individuals and Corporation tax in respect of companies, and like a lot of treaties it does not cover Inheritance tax at all. The treaty is very legally worded document and is difficult to digest but it does cover most points that will arise in the taxation affairs of a resident of either country who has income or gains arising in the other.

Some examples of income covered by the treaty:

Income from employment is only taxed in one country valid from where the employee is currently a resident, apart from this the only exception is if the employee is resident in one country and carries most his duties in a different country.

Business profits are taxable if it has a permanent establishment in the country. However, if a company is based in the UK but has a permanent establishment in Russia, Russia may tax the profits which arise from this.

Dividends paid from a company in one country to a resident of the other country are eligible to be taxed in both countries. This is achieved by the company or institution paying the dividend deducting a withholding tax from the gross payment, under the OECD guidelines this should not exceed 15%. The recipient is then taxable in the country of their residence and is given credit for the withholding tax against their total liability on the dividend.

Interest is the same way as dividends; although the withholding tax is normally capped at 10%.

R&D Tax Relief

Research and Development Tax Relief is a form of corporate tax relief that may help in reducing the company’s tax bill. Such form of tax relief can only be claimed only if your company is liable for corporate tax

The way tax relief is claimed depends on the size of the company. Depending on whether the company is an SME or a Large company schemes will differ.

R&D projects that might qualify for relief

A company is only qualified to claim R&D Tax Relief if the project aims to achieve advancement in the overall knowledge and capability in the field of science and technology through resolving a specific uncertainty. The project must also be relevant to the area in which the company operates and own intellectual property that may arise from the project.

When filing the CT Return an explanation of each of the following must be given in detail:

  • project
  • advance in science or technology
  • science
  • technology
  • direct contribution
  • scientific or technological uncertainty

Costs that qualify for R&D tax relief

  • Employee costs
  • Staff providers
  • Materials
  • Payments to clinical trials volunteers
  • Utilities
  • Software
  • Subcontracted R&D expenditure
  • Capital expenditure

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