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. Last Updated: 07/27/2016

THE TAX ADVISER: Business Travel Costs Deductible to a Point

I have a commercial representative office performing consulting services in Russia. I have heard that there are limitations on the deductibility of business travel expenses. What are the limitations and do they apply to representative offices?

Yes, there are limitations and they apply to both Russian and foreign legal entities.

Business travel expenses are deductible by Russian and foreign legal entities carrying on business in Russia up to certain prescribed limits. In fact, as of Sept. 1, 1999, new limits have been established that are more beneficial to taxpayers (although still well below reasonable travel standards). The limits are imposed on all employee travel, whether for an expatriate or Russian citizen.

The current limits for business travel expenses in Russia (effective Sept. 1, 1999) are as follows: Hotel accommodation with receipt 270 rubles; hotel accommodation without receipt 7 rubles; per diem 55 rubles.

Prior to Sept. 1, 1999, the limits for business travel expenses in Russia were as follows: Hotel accommodation with receipt 145 rubles; hotel accommodation without receipt 4.5 rubles; per diem 22 rubles

Foreign business travel expenses remain the same and are limited based on the country visited. The allowable per diem and accommodation deduction ranges from $20 to $58.

In addition to the expenses noted above, business travel may include tickets (for airplane, railway, etc.) and expenses for the issuance of a foreign passport for Russian nationals and visas. There are no limitations on the deductibility of these expenses.

Strict administrative procedures must be followed in order to deduct business travel expenses. Noncompliance can lead to the disallowance of these expenses as a deduction from the profit tax base. Business travel expenses can either be advanced or reimbursed to the employee.

Because of the limitations of deductibility and the strict administrative requirements, tax audits often focus on travel expenses as many companies are often not in full compliance with legislation. You can reduce your potential tax exposure by making sure your company has strict policies and procedures regarding business travel.

Glenn Geffner is national managing director of tax services at Deloitte & Touche in Moscow. Please fax any questions to: The Tax Adviser, Deloitte & Touche, 956-5001.