Putin’s granting of citizenship to French actor Gerard Depardieu has unleashed heaps of speculation about the actor’s motives for doing so. Most commentators claim that Depardieu enters Russia as a tax exile, however, an analysis of the tax laws would not back up these claims. Russia truly has an encouraging libertarian tax regime with the famous 13% flat tax rate, but the thing is that Depardieu could have made even better use of the freedoms of Putin’s tax regime if he hadn’t taken up citizenship.
Russia, like most European countries, does not base taxation on citizenship but on so-called tax residency. As a rule of thumb, you are a tax resident of that European country where you spend more than half of the days of the year. To be precise concerning Russia, the rule is that if you spend at least 183 days during a rolling 12 months’ period then you are a Russian tax resident, this being an automatic consequence of spending that time on Russian territory. The rule is same for Russians and expats, so that if a Russian citizen stays less than that time in Russia he is no longer a tax resident either. It is these tax residents that enjoy the 13% tax while non-residents pay 30%. These rates, 13 and 30%, concern most types of personal income including residuals and royalties while other rates apply for special categories of income; the dividend tax for a Russian tax resident is 9% while a non-resident would pay 15%.
Some foreigners with a special status, however, fall under the 13% tax even if they don’t qualify as tax residents. These are those foreigners who have received a work permit under the status of a highly-qualified specialist. In this case the person would not have to live in Russia and anyway be eligible for the 13% tax. But by taking up Russian citizenship Depardieu has forfeited this opportunity which is available only for foreigners. Thus, from point of view of taxation Depardieu did not gain anything by the citizenship, rather on the contrary. We must therefore trust that Depardieu is here, as he says, moved by other more deep-rooted feelings for Russia. We should also remember that as Depardieu attempts to renounce his French citizenship and has handed back his French passport he has had the need to become a citizen of another country. It is then from this point of view that the Russian citizenship comes as a solution for Depardieu rather than the fiscal motives.
To understand the picture more profoundly, one needs to remember what was said about the residency principle of European taxation. Thus the country where Depardieu ultimately chooses to reside is the one that has the biggest claim on taxing him. From all we know Belgium is a strong candidate for this. If Depardieu also intends to spend much of the year in Russia, then both these countries would have a potentially competing claim to the tax. Such collisions are resolved by so-called double tax treaties that countries conclude which each other to regulate the competing claims to taxation. Russia has such treaties with most European countries, among them Belgium and France. According to the Russia-Franco treaty, in addition to salaries and income from professional services, Depardieu’s residuals, royalties and other such income for his films would be taxed in Russia if he were to become a tax resident there. This income would then be withdrawn from under the draconian French 75% tax and fall under the Russian libertarian tax of 13% or 30% as the case may be – the latter also comparing favorably with the French tax.
Between Belgium and Russia the competing claims to taxation would depend most of all on the question in which country Depardieu would spend more than half the year. But if he would be less than half a year in either country, then Russia would ultimately have a better claim in view of the country of citizenship.
Jon Hellevig,
Managing Partner of Hellevig, Klein & Usov
