Personal Income Taxes in Russia
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Income Tax
Russia currently has a flat 13 percent personal income tax rate (for tax residents), one of the lowest personal tax rates of any non-tax haven country in the world. The low rate is, however, somewhat offset by continuing difficulties faced by taxpayers in dealing with the tax administration system: even paying tax can be logistically challenging in Russia.
Who is Liable?
Payers of Russian individual income tax are defined as tax residents of Russia, and non-resident individuals who receive income from Russian sources.
Definition of a Resident
Russian tax residents are currently defined as individuals who spend not less than 183 days in Russia in a calendar year (in any 12-month period from 2007). Accordingly, non-residents are those individuals who spend less than 183 days in Russia in a calendar year (in any 12-month period from 2007). Days of arrival are not counted as days in Russia, while days of departure are counted as full days.
Russian tax residents are taxed in Russia on their worldwide income.
Individuals who are not tax residents in Russia are taxed on their Russian source income, which includes, but is not limited to:
Remuneration for the performance of employment duties, services and actions in Russia
Dividends and interest paid by a Russian organization
Insurance payments made by a Russian organization
Income from the sale of property in Russia (e.g., immovable property, Russian securities and participation interests in the charter capital of Russian organizations)
Tax Rates
There are currently four flat rates of 9 percent, 13 percent, 30 percent and 35 percent, applicable to different types of income.
A flat 9 percent rate applies to dividend income and certain other less common forms of investment income (both Russian and non-Russian source) received by residents.
A flat 13 percent rate applies to all income for which another rate is not specified, for example, salary and other earned income received by tax resident individuals.
A flat 30 percent rate applies to all Russian-source income received by individuals who are not tax residents in Russia.
A flat 35 percent rate applies to income in the form of bank interest in excess of the CBR refinancing rate on ruble deposits (or exceeding 9 percent on non-ruble deposits), certain insurance pay-outs, certain prizes and deemed income from certain low- or zero-interest loans.
Tax Collection Procedures
Tax is, for most taxpayers, payable through withholding at source. Any individual who has received income subject to tax in Russia where the tax was not already withheld at source is obliged to file a tax return. In particular, individual filing obligations typically arise due to non-withholding in one of the following situations:
A Russian tax resident has received income from payers outside Russia
An individual has received Russian source income that was not subject to withholding at source
An individual has received Russian source income from another individual under a civil-legal contract (including rental and sales agreements)
An individual has registered in Russia as an entrepreneur
An individual may also file a tax return on a voluntary basis, even where there is no technical requirement to do so. In particular, this is often needed in order for excess withholding to be refunded in connection with certain tax deductions which cannot be granted through the payroll.
Annual tax returns are due no later than by April 30 of the year following the reporting calendar year, the corresponding tax self-assessed in the declaration must be paid no later than July 15 of said following year. Foreign nationals leaving Russia are required to file a tax return one month prior to their departure disclosing all of the income received for the period up to the date of departure and pay the corresponding tax within 15 days of filing the return.
Although the law stipulates self-assessment, many tax authorities continue to issue formal assessments of a taxpayer‘s liability.
Under the Tax Code, a penalty of 5 percent per month is imposed for the late submission of a tax declaration for the first 180 days after the deadline. This accelerates to 30 percent plus a 10-percent-per-month penalty thereafter. This penalty is uncapped. Criminal sanctions could also be applied, in rare cases. The late payment of tax is subject to interest at a rate of 1/300 of the official CBR refinancing rate for each day of late payment.
Capital Gains and Losses
The capital gain on operations with securities is calculated as the difference between the proceeds from the sale of securities and the documented acquisition costs and expenses (including fees for services connected with purchase or sale of the securities). Where no documentary support can be provided, the sale proceeds may be reduced by an annual allowance of RUR 125,000. The gains will not be taxed if securities are held for more than three years and the related expenses cannot be documented. The tax is either withheld at source by the payer of income, or, otherwise, paid by the taxpayer upon filing the tax return. Losses from the sale of marketable securities can be deducted against gains on securities of the same class within the same tax period, but are not subject to carry forward.
The taxation of stock options and other equity-based compensation is not dealt with specifically in the Tax Code.
Personal Allowances
Tax resident taxpayers are entitled to the following tax deductions:
Educational fees of the taxpayer and his or her dependent children, up to a maximum of RUR 38,000 per annum (RUR 50,000 from 2007) per child. This deduction is only available if the expenses are paid to an educational establishment licensed in Russia.
Expenses on medical services and medication, limited to RUR 38,000 per annum (RUR 50,000 from 2007), provided the expenses relate to services provided by a medical institution in Russia
Property purchase expenses. Up to RUR 1,000,000 spent on the construction or acquisition of living premises in Russia, together with unlimited amounts of interest paid on a loan taken out specifically to fund such an acquisition or construction is deductible. This deduction may be claimed once in a lifetime only.
Charitable contributions to scientific, cultural, educational, healthcare and social security organizations financed in part by the Russian state budget, or religious organizations, limited to 25 percent of total income received in a calendar year.
Apart from the deduction for property purchase expenses, which can be obtained through the payroll, the above deductions can only be claimed by the taxpayer through the submission of a tax declaration.
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