The tax on a vessel charter payment turns on one thing most people overlook — the charter type. Bareboat, time and voyage charters are taxed differently, and getting the characterisation wrong means the wrong WHT and a VAT surprise at once.
The charter type — bareboat, time or voyage. The label sets the withholding rate and whether a VAT-agent obligation arises, so it has to be right before you pay.
Characterise the charter correctly, apply the right WHT, and set up the VAT-agent mechanism and currency-control documentation so the payment clears compliantly.
When a Russian company charters a vessel from a foreign shipowner — whether on a bareboat, time or voyage charter — the payment triggers a cluster of Russian tax and compliance obligations that are easy to miss. The Russian charterer typically acts as a tax agent: it is responsible for withholding and remitting Russian corporate income tax on the freight, determining whether VAT applies and in what form, and complying with currency control rules on the cross-border payment. Getting any of these wrong creates exposure to penalties, interest and potential double taxation that is hard to unwind. This guide covers the full framework for 2026.
Russian tax law treats different charter structures differently — the tax position is not the same for all types of vessel hire:
The characterisation matters because it determines: (1) whether Russian WHT must be withheld, (2) at what rate, and (3) which VAT rules apply. Mischaracterising a time charter as a bareboat (or vice versa) is a common error with significant tax consequences.
Under Article 309(1)(7) of the Tax Code, income received by a foreign organisation from leasing (including bareboat chartering) of vessels used in Russia constitutes Russia-source income subject to withholding tax. The rate is 10% of the gross charter hire payment — the Russian charterer withholds and remits this to the FTS.
Pick what applies — we'll tell you the tax:
The 10% rate applies to income from use of vessels in Russia. Where a vessel operates predominantly outside Russian territorial waters, whether the income is "Russia-source" requires factual analysis — this is an area of active dispute with the FTS.
WHT applies to the gross payment — there is no deduction for the foreign shipowner's costs. This is a significant difference from the treaty-based position (where only net profit is taxed), and is one of the main reasons treaty claims matter.
The Russian charterer is the withholding agent (налоговый агент) and bears personal liability for the tax if it fails to withhold, even if the foreign owner refuses to absorb it contractually.
Payment for transport services rendered by a foreign company outside Russia (international voyages) does not constitute Russia-source income under Article 309 and is therefore not subject to Russian WHT. The foreign shipowner's income from time or voyage charter for international routes falls outside the Russian withholding tax net — provided the services are genuinely performed outside Russian territory.
However, where a time or voyage charter covers exclusively domestic Russian routes (cabotage — перевозка между российскими портами), the position is more complex and WHT exposure may arise. Seek specific advice for domestic-only charters.
The Russian FTS does not accept charter type solely based on the contract label. If a contract is titled "time charter" but the shipowner has no crew on board and the charterer is responsible for all vessel management — the FTS may recharacterise it as a bareboat charter and assess 10% WHT. The actual operational arrangement matters as much as the contract documentation.
Russia's double tax treaties generally provide reduced or zero withholding tax rates on shipping income. For bareboat charters specifically, many treaties exempt or reduce the rate on "profits from operation of ships in international traffic". The treaty position by major shipowning jurisdiction:
To apply a treaty rate, the foreign shipowner must provide a Tax Residency Certificate (TRC) confirming residence in the treaty country, and a confirmation of beneficial ownership of the charter income. The TRC must be provided to the Russian charterer before the payment is made — retroactive treaty claims are technically possible but practically difficult.
The VAT position depends on the charter type and the route:
Where the Russian charterer is the VAT tax agent (налоговый агент по НДС), it must: (1) add 22% VAT to the charter payment notionally, (2) remit the VAT to the FTS, and (3) issue itself a self-billed invoice (счёт-фактура). The charterer may then recover this VAT as input tax in its own VAT return, provided the vessel is used in its VAT-taxable activities — making the VAT cost cashflow-neutral rather than a hard cost for most businesses.
Charter payments to foreign shipowners are foreign currency transactions subject to Russian currency control under 173-FZ. Key practical points for 2026:
Authorised bank: all payments must be made through a Russian authorised bank. The bank must be provided with documentation supporting the payment — the charter contract, invoices, and any relevant certificates (class, registration).
Unique contract number (УНК): where the total contract value exceeds RUB 3 million (or equivalent), the charter contract must be registered with the bank and assigned a Unique Contract Number. The УНК must be referenced in all subsequent payment instructions.
VO codes: each payment must be assigned the correct currency control transaction code (VO code) — the code for bareboat charter is different from that for time charter freight. Incorrect VO codes trigger bank compliance queries and can delay or block payments.
Payment in rubles: under the current Russian currency regime, payments to counterparties from "unfriendly" countries must in some circumstances be made in rubles or through specific mechanisms. For shipowners from friendly jurisdictions (China, UAE, Turkey), standard foreign currency payment remains available through non-sanctioned banks.
Sanctioned banks: payments routed through Russian banks under OFAC or EU secondary sanctions will be blocked at correspondent bank level. Confirm that the receiving bank of the foreign shipowner is not on any relevant sanctions list before initiating payment.
Classify the charter (bareboat vs time vs voyage) correctly based on operational reality — document who manages the crew and vessel
For bareboat charters: withhold 10% WHT unless a treaty provides a lower rate and TRC documentation is obtained in advance
Check the treaty status of the shipowner's jurisdiction — some treaties are suspended; flag-of-convenience registrations may not attract treaty protection
It depends on the charter type — bareboat, time or voyage charters carry different withholding treatment, and some trigger a VAT-agent obligation. Characterising the charter correctly is the first step, because the label decides the rate; getting it wrong means the wrong WHT and a possible VAT assessment.
Possibly — depending on the charter type and where the service is treated as supplied, a VAT-agent obligation can arise on the Russian side. It's worth confirming before the payment, since an unaccounted VAT-agent duty surfaces later as an assessment with interest.
Usually a currency-control or documentation issue — the payment needs the right supporting paperwork to clear. Structuring the charter payment to satisfy currency control, alongside the tax treatment, is what keeps it moving.
This explains the withholding on charter payments. The question for your deal is which rate actually applies — because bareboat, time and voyage charters are taxed differently, and the VAT-agent duty on top is easy to miss.
Practical support for international business in Russia.