The Ministry of Finance of Russia has recently announced changes in taxation that concern expatriates. Income processed via the Russian payroll will be considered as Russian source income irrespective of place where work is performed. However, if an individual works in Russia and receives remuneration from a foreign entity, such foreign organisation will be obliged in certain cases to act as tax agent and withhold Russian personal income tax at source and remit it to the Russian budget. However, provisions of relevant double tax treaty (if applicable) should prevail over the rules set up by the Russian tax code.
Expatriate tax teams in Grant Thornton Russia’s offices can assist expatriates and their employers to navigate through Russian tax and employment related matters including advice on tax planning opportunities, management of assignment policies and provision of Russia tax filing services.
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Individuals going to come to or depart from Russia shall review provisions of the Russian legislation and carefully plan their actions and use tax planning opportunities provided by the Russian legislation prior to their move.
Normally, foreign citizens shall have a work permit, employment contract and voluntary health insurance to legally work in Russia.
As a rule, foreign citizens are also required to get visa to enter Russia, though citizens of certain countries are able to enter Russia on a visa-free basis.
Russian legislation provides special conditions for so called ‘highly qualified foreign specialists’ which may obtain work permit on a simplified basis and enjoy certain tax benefits. Basic monthly salary rate shall be paid to the high-qualified specialist is about 2000 EUR. However, a particular rate to be paid depends on specialization and sphere of economy such an employee working in.
In addition, some preferences in getting work permits are provided for top-management and highly paid well-qualified foreign specialists of the foreign company, who are seconded to the Russian branch, representative office or subsidiary.
After each crossing of the Russian border, a foreign employee shall be registered with migration authorities in the territorial department of the Ministry of Internal Affairs.
While hiring foreign specialists, the employer shall also remember about reports to authorized migration authorities on hiring and dismissal of foreign employees, salary payment (quarterly).
The Russian tax year runs from 1 January to 31 December.
As a rule, income received from a Russia legal entity, or from a foreign legal entity having a subdivision in Russia, or from individual entrepreneur (referred to as ‘tax agents’) is subject to tax withholding.
Income subject to tax and not subject to tax withholding at source of payment shall be reported on annual Russian tax declaration. Tax filing deadline is 30 April year following the reporting year, and no extension is available. Corresponding tax payment deadline is 15 July year following the reporting year, and no extension is available.
Individual is not obliged to file a tax declaration, but is obliged to pay personal income tax on the basis of tax notification issued by the Russian Tax Authorities in following cases:
- if tax has not been fully withheld at source, and tax agent informed the tax authorities accordingly
- if individual received interest from Russian bank in amount above non-taxable threshold
- if individual’s annual income from several tax agents exceeds RUB 5 million, and the Tax Authorities recalculates tax due by applying tax rate of 15% to amount of income exceeding RUB 5 million.
Under the effective Russian legislation, tax residence status of an individual depends solely on number of days of physical presence in Russia. Individual is considered a Russian tax resident if such individual spends at least 183 days in Russia during any period of 12 consecutive months.
However, the Ministry of Finance of Russia clarifies that ‘final’ tax residence status of an individual shall be determined on the basis of tax (i.e. calendar) year. Such position is supported by the Constitutional Court of the Russian Federation. Thus, in order to determine tax residence status for tax filing purposes an individual shall count number of days of physical presence in Russia within a calendar year.
Days of arrival to and departure from Russia shall be counted as full days spent in Russia. Periods of short-term trips to abroad due to medical treatment and for educational purposes may be excluded from days spent outside of Russia.
The effective Russian legislation does not require individuals to notify the Russian Tax Authorities about change of tax residence status.
Tax residence certificate covering certain calendar year may be issued by the Federal Tax Service on the basis of individual’s application.
Russian tax non-residents are taxable in Russia on income sourced from Russia while Russian tax residents are taxable in Russian on worldwide income (i.e. income from Russian and from any foreign source).
Russian source income includes, but is not limited to, dividends from Russian entities, interest from Russian entities and individuals, income from property located in Russia, income for work performed / services provided in Russia (irrespective of actual payroll location).
Recently, the Ministry of Finance of Russia announced intention to implement changes in the Russian legislation and recognize as Russian source income salaries and wages as well as service remuneration received from a Russian entity irrespective of place of work performing / service provision.
Some types of income are non-taxable in Russia.
Progressive taxation is introduced in Russia for tax residents. Generally, annual income of up to RUB 5 million is taxable at 13% rate, whereas income above this threshold is taxable at 15% rate.
Flat rate of 13% is applicable to the following types of income received by Russian tax residents irrespective of total annual income received:
- proceeds from sale of a property and/or an share in a property (except for securities);
- value of a property received as a gift (except for securities);
- payments under insurance contracts and pension payments.
Non-residents are taxable at flat tax rate of 30% applicable to all types of income sourced from Russia, except for the following:
- Income of highly qualified foreign professionals is taxable at 13%/15% rate depending on total annual income (similar to tax residents);
- Employment income of foreign nationals from non-visa countries is taxable at 13%/15% rate depending on total annual income;
- Employment income of refugees is taxable at 13%/15% rate depending on total annual income;
- Interest income derived from Russian banks is taxable at 13%/15% rate depending on total annual income;
- Dividends from Russian companies are taxable at 15% rate depending on total annual income.
Russian tax residents are eligible for tax deductions on certain types of expenses incurred by taxpayer and not reimbursed by the employer and/or any other third party. Tax deductions are associated with expenses for:
- medical treatment and education (limited to RUB 120,000 per year plus expenses for child’s education capped at RUB 50,000 per child per year);
- for charity (limited to 25% of income received);
- for purchase / construction an apartment of house in Russia (limited to RUB 2,000,000 plus RUB 3,000,000 for interest paid on mortgage, if applicable).
Other tax deductions are small and are mainly associated with personal circumstances (e.g. standard deduction for taxpayers having child).
As of 2021, Russia has Double Tax Treaties (DTT) with 80 countries, and provisions of such DTTs prevail over rules set up by the domestic legislation. The recent trend is changing DTTs with ‘transit’ jurisdictions by increasing tax rates on interest, dividends, royalty. As a result, DTT between Russia and the Netherlands will be cancelled as of 1 January 2022.
Tax benefits allowable under the DTT shall normally be claimed on the basis of tax return filing, e.g. foreign tax credit is granted on the basis of tax return. Individual shall prove right for tax benefit by filing corresponding documents with the Russian Tax Authorities.
Russia participates in automatic exchange of financial information with other countries.
Russian tax residents having a share in a foreign organization or structure (including trust) of more than 10% or controlling such foreign company or structure are obliged to notify the Russian Tax Authorities about such CFC and file special CFC reporting form on annual basis as well as to pay personal income tax on profit generated by CFC at rates of 13% / 15% depending on total annual income.
Individual may apply special regime and pay ‘fixed’ tax in amount of RUB 5,000,000 per year irrespective of actual profit generated by CFC.
Russian legislation provides significant penalties for CFC non-compliance.
Russian legal entities, individuals and individual entrepreneurs as well as foreign entities having registered presence in Russia are required to pay social insurance contributions on top of income paid to an individual. Individuals (not registered as individual entrepreneurs) are not obliged to pay social insurance contributions from income they received themselves, though they may make voluntary contributions.
Rates are as follows:
- Contributions to the State Pension Fund – the rate of 22% is applicable to income up to RUB 1,465,000 per annum in 2021 plus 10% rate applicable to income exceeding the above limit
- Contributions to the Social Insurance Fund – the rate of 2.9% (1.8% for foreign citizens temporarily staying in Russia) is applicable to income up to RUB 966,000per annum in 2021. Income exceeding the limit is not subject to contributions to the Social Insurance Fund
- Contributions to the Medical Insurance Fund – the rate is 5.1% (applicable to full amount of income with no limitations).
Limits of income for contributions to the State Pension Fund and to the Social Insurance Fund are subject to change on annual basis.
Certain types of entities are eligible for decreased rates of obligatory social insurance contributions, such as:
- Small and Medium Enterprises pay obligatory social insurance contributions at cumulative rate of 15% on income exceeding minimum wage (RUB 12,792 in 2021 – subject to change on annual basis)
- IT companies pay obligatory social insurance contributions at cumulative rate of 7.6%.
‘Tax on Professional Income’ is a special tax regime available for Russian citizens and citizens of Eurasian Economic Union (Belarus, Kazakhstan, Armenia, and Kyrgyzstan). ‘Professional income’ relates to income not associated with employment, eg rental income, tuition fees, income from provision independent services. Certain types of activities are directly excluded from ones allowing to apply this special tax regime (eg resale of goods produced not by taxpayer).
‘Professional income’ in amount up to RUB 2,400,000 per year is taxable at rate of 4% if generated from individuals and 6% if generated from legal entities or individual entrepreneurs. Income exceeding the limit is subject to tax on a general basis depending on the status of individual.
No additional taxes and/or contributions are payable under this regime.
Transport tax, land tax and property tax are payable by individuals (both Russian and foreign citizens) having corresponding types of property located in Russia in their ownership. Tax rates vary depending on type of property, region of location, status of a taxpayer, etc.
Russian citizens and foreign citizens having Russian residence permit are obliged to notify the Russian Tax Authorities about opening / closing / change of requisites of account in foreign banks and financial institutions and file cash-flow report in respect of such foreign accounts on annual basis. Individuals spending more than 183 days outside of Russia within a calendar year are exempt from obligation to report on foreign accounts.
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