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. Last Updated: 07/27/2016

Foreign Firms' Tax to Be Eased, Says Aide

The government will sign within the next two weeks an order on foreign investment designed to ease the tax burden on foreign companies, a senior presidential aide said Friday.

Yevgeny Yasin, head of the Analytical Center under President Boris Yeltsin, told members of the American Chamber of Commerce that the executive order would abolish the capital-gains tax on hard-currency bank accounts and the double imposition of value-added tax.

Yasin said that the recommendations of foreign businessmen and of a consultative council on foreign investment set up by Prime Minister Viktor Chernomyrdin had been taken into account in drafting the order.

"I know that this is not enough to create the appropriate environment for attracting foreign investment to Russia," Yasin said. "But these are only the first steps that have been taken, and they have been taken with your assistance."

In addition, Yasin said the Finance Ministry and the State Tax Service will soon issue guidelines for implementation of a September 1993 presidential decree that exempts foreign companies from detrimental changes in taxation rules for three years after they have been passed. Until now, foreign firms have frequently been asked to pay such taxes.

"If they are thinking of implementing this law, then it's good news for foreign businesses," said Marcia Levy, a lawyer with Norton Rose.

Yasin said the forthcoming governmental order will call for the abolition of double taxation of foreign businesses in relation to VAT. This is an area of confusion in Russia where international tax treaties designed to avoid double taxation are frequently ignored by local tax authorities.

The order also seeks to amend regulations so that tax is no longer imposed on the nominal "gains" made by foreign-currency account holders due to the decline of the ruble's exchange rate. In the future, he said, only gains from currency conversion will be taxed.

Yasin also pointed to other proposed changes in the taxation system that would benefit foreign companies. Legislation will be put to parliament when it reconvenes this fall that would abolish the much-criticized excess wages tax for foreign companies as of January. Russian firms will benefit a year later. At present the 38 percent tax is levied on the portion of all salaries that exceeds six minimum wages, or about $51.

To compensate for this and other reductions in corporate tax, the government is seeking to increase tax on individuals: The maximum rate of income tax would increase from 30 percent to 35 percent, subject to parliamentary approval.