Personal income tax in Russia

Taxpayers

The provisions on personal income tax for individuals are given in Chapter 23 of the Russian Tax Code. Taxpayers

Taxpayers for personal income tax purposes are both Russian Residents and Non-Residents, who receive income from Russian sources (art. 207).
Individual entrepreneurs are taxed with the personal income tax also for their business profits. However, the rules for deductibility of expenses for individual entrepreneurs is however determined in accordance with the rules for profit tax (art. 221). An, individual entrepreneurs may also opt to be taxed under a special tax regime (for more details please refer to chapter Tax Concessions and Subventions).

Employers or other payers of income are considered tax agents which have the obligation to calculate, withhold and remit the tax to the Government (art. 226).

A tax resident is a person who has actually spent at least 183 calendar days in Russia over 12 consecutive months.  Under certain exceptional circumstances, the tax residency status is not lost due to short-term visits abroad in particular when a tax resident spends a maximum of 6 months abroad for educational or medical treatment purposes. A non-resident is a person staying in Russia fewer than 183 calendar days over 12 consecutive months.

Tax residency is determined by the actual days spent in Russia during any continuous 12-month period counted back from the date of receipt of the income subject to taxation (Ministry of Finance N 03-04-06/6-170 of 14.07.2011; N 03-04-06/6-169  of14.07.2011).

Tax rates and other tax obligations can vary significantly depending on whether an individual is conferred the status of tax resident or non-resident. It is therefore also important to consider the rules for calculating days of presence in Russia. According to the Ministry of Finance of Russia, an individual’s tax status is determined by taking into account all the days actually spent by the individual in Russia, including the day of arrival and day of departure without regard to how many hours were spent in Russia during those days of travel. This position is confirmed by the Ministry of Finance (Ministry of Finance N 03-04-06/6-324 of 29.12.2010; N 03-04-06/6-283 of01.12.2010). This has changed the earlier interpretations issued by the tax authorities (Federal Tax Service N 04-1-04/929 of 28.12.2005). Despite the authoritative interpretation by the Ministry of Finance, there has been court practice upholding the earlier interpretation of  not including the day of arrival to calculate the number of days spent by an individual in Russia to determine the individual’s tax status (Federal Commercial Court of  the Central Federal District on case N А54-3126/2009С4 of  11.03.2010).

The Russian law on personal income tax may contradict the laws of other countries and may in extreme cases result in tax residency simultaneously in Russia under Russian laws and in another country under laws of that country.  For such cases a relevant double taxation treaty concluded between Russia and another country contains rules for determining the residency status and avoiding double taxation of personal income in the two treaty countries. (Read more on double taxation treaties in chapter Double Taxation Treaties).

Tax residents are taxed in Russia for their worldwide income, while non-residents are taxed for Russian source income only. Russian source income is income received in connection with duties performed in Russia (not necessarily paid in Russia) and a number of other types of income, including interest or dividends and income from disposal of property in Russia (see below for more details on Russian source income).

It should be noted that residency according to the Tax Code (tax residency) and residency as envisaged by civil law or currency and administrative regulations are different matters. In accordance with the Russian Civil Code the place of residence of a Russian citizen is his place of permanent or habitual living (art. 20).  However, the Supreme Court has held that the special procedure of “registration” of individuals (including foreigners) in their place of living is only indicative, not determinative of their residency status (ruling of the Supreme Court of 22 June 2005 No. 93-Г05-7). It therefore appears that Russian civil law, currency and administrative regulations do not require that a person lives in Russia to keep their residency status. A foreign national may apply for a residence permit but it has in practice been very difficult to receive such. A tax residency, on the contrary, comes about automatically when a person spends 183 days or more in Russia during 12 consecutive months.

Foreign diplomats do not pay personal income tax in Russia, if their home country extends the same exemption to Russian diplomats (art. 215).

Tax rates

The tax rates for various kinds of income are listed in below table (art. 224).

For more details on taxation of dividends, please see Chapter 37 “Taxation Aspects of Russian Investment”.

All income received by non-residents is subject to a tax rate of 30% regardless of how it is earned (art. 224). The Tax Code provides for only a few exceptions to this rule. For instance, the income of foreign nationals working in Russia with the migration status of a so-called  highly qualified-specialist is subject to a tax rate of 13% regardless of the time of actual stay in Russia (tax residency or not). Foreign nationals are conferred the status of a highly qualified specialist in connection of successful application for the relevant work permit confirming this status.

From July 01, 2010 the procedures for employing foreigners as a highly qualified specialist were considerably simplified. Previously, all categories of foreign nationals could obtain a work permit only for one year. Now, highly qualified specialists may obtain a work permit and a work visa for up to 3 years.

The law efficiently provides for only one criterion defining foreign nationals as highly qualified specialists. In the normal case this criterion is that the annual salary paid by the Russian employer amounts to at least 2 million rubles per annum (approximately EUR 50 thousand euros).

For certain kinds of professions the annual salary thresholds are lower, as follows:

­- RUB 1 million for scientists or teachers, invited for research or teaching at universities, colleges, research centers (higher educational institutions with relevant state accreditation).
– RUB 1 million for professionals invited to work at certain special economic zones.
­ -Without any minimal salary limit for foreign nationals working at the Skolkovo innovation center. 

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