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  • Service: Tax, International Executive Services
  • Type: Regulatory update, Survey report
  • Date: 2/26/2014

Income Tax 

Taxation of international executives
Tax returns and compliance
Tax rates
Residence rules
Termination of residence
Economic employer approach
Types of taxable compensation
Tax-exempt income
Expatriate concessions
Salary earned from working abroad
Taxation of investment income and capital gains
Additional capital gains tax (CGT) issues and exceptions
General deductions from income
Tax reimbursement methods
Calculation of estimates/prepayments/withholding
Relief for foreign taxes
General tax credits
Sample tax calculation


All income tax information is summarized by KPMG Limited, the Russian member firm of KPMG International, based on the Russian Tax Code of 1998 (part 1), 2000 (part 2), and subsequent amendments.


Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?


Generally, 30 April of the year following the tax year.


A foreign national may be required to file a departure tax return if he/she terminates activities generating income taxable in Russia on a self assessment basis and leaves Russia. A departure tax return should be filed not later than 1 month prior to the departure from Russia.


What is the tax year-end?


31 December.


What are the compliance requirements for tax returns in Russia?


Individuals conducting private activities including individual entrepreneurs, individuals who received income from which income tax was not withheld and other specific categories of individuals are obligated to file a tax return. Tax returns must be filed by 30 April of the year following the tax year and the final tax payment should be made not later than 15 July of the year following the tax year.


Generally, if during a calendar year, a foreign national terminates activities generating income taxable in Russia as stipulated in the Russian Tax Code and intends to leave Russia, the individual must submit a tax return not later than one month prior to the departure from Russia. Income tax due on departure tax return should be paid within 15 days from the date the tax return is filed.


Failure to file a tax return in time may result in penalty equal to 5 percent of outstanding tax liability per each month of delay. The total amount of late filing penalty is limited to 30 percent of the outstanding tax liability calculated on tax return but cannot be less than RUB1,000. Delay in tax payment results in interest charge equal to 1/300 of the refinancing rate of the Central Bank of Russia per each day of delay.


Residents


Resident taxpayers are subject to Russian personal income tax on their worldwide income at the general flat rate of 13 percent on the most types of income. Different tax rates apply to specific types of income (please refer to the section Tax rates for more information).


Non-residents


Non-resident taxpayers are subject to Russian personal income tax on their Russian source income at the general flat rate of 30 percent (exceptions are specified in the section Tax rates).


The current definition of Russian source income includes, inter alia, remuneration for activities and services performed in Russia regardless of the location of the paying entity, remuneration of directors of Russian companies, income from property located in Russia, dividend and interest income from Russian companies, etc.


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Tax rates

What are the current income tax rates for residents and non-residents in Russia?


Residents


A flat income tax rate of 13 percent applies to all types of income with some exceptions.


  • 9 percent tax rate applies to dividend income from Russian and foreign companies and specific investment income in Russia.
  • 35 percent tax rate applies, inter alia, to the following types of income:
    1. Prizes received during advertising events (if total value exceeds RUB4,000 per annum).
    2. Interest on deposits in Russian banks (if it exceeds the interest calculated at the rates established by law).
    3. Deemed income resulting from loans received from organizations and individual entrepreneurs at a preferential interest rate (e.g., at a rate below 9 percent per annum for non-rouble loans), including use of credit cards issued by non-Russian banks which provide for a grace period (i.e., no interest is charged for a certain period for the use of funds within the limit approved for the cardholder).

Non-residents


A flat income tax rate of 30 percent (unless a lower rate is available under a DTT) applies to Russian source income with some exceptions which, inter alia, include:


  1. 15 percent tax rate applies to dividend income from Russian companies;
  2. 13 percent tax rate applies to remuneration of foreign nationals employed in Russia under a "highly qualified specialist" regime. This rate applies only to remuneration paid according to Russian employment contracts concluded within the frame of the "highly qualified specialist" regime;

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Residence rules

For the purposes of taxation, how is an individual defined as a resident of Russia?


An individual is considered a Russian tax resident on a specific date if he/she is physically present in Russia for 183 or more days during a period of 12 consecutive months preceding the specific date (this test is used for tax withholding purposes during a calendar year). Final tax liabilities for a reporting calendar year are determined based on a tax residence status for this year. In particular, if an individual spent at least 183 calendar days in Russia in the reporting year, he/she is considered as a tax resident with regard to the entire reporting year.


If the individual leaves Russia for less than six months for medical treatment and/or educational purposes, such days out of Russia can also be counted as Russian days. For the purpose of calculation of days of presence in Russia, both days of arrival and departure should be taken into account.


Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.


Not applicable.


What if the assignee enters the country before their assignment begins?


If the assignee enters the country before their assignment begins, these days are taken into account when determining the assignee’s Russian residency position for income tax purposes.


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Termination of residence

Are there any tax compliance requirements when leaving Russia?


A foreign national may be required to file a tax return if he/she terminates activities generating income taxable in Russia on a self assessment basis and leaves Russia. The personal income tax return should be submitted no later than one month prior to departure from Russia and personal income tax liabilities should be settled within 15 days of filing of the tax return.


What if the assignee comes back for a trip after residency has terminated?


If during a trip the assignee works or provides services in Russia, income derived from such activities in Russia should be taxable in Russia unless a tax relief is available under a DTT.


Communication between immigration and taxation authorities


Do the immigration authorities in your country provide information to the local taxation authorities regarding when a person enters or leaves your country?


Generally, the immigration authorities provide such information to the tax authorities upon request of the latter.


Filing requirements


Will an assignee have a filing requirement in the host country after they leave the country and repatriate?


Such requirement may arise if the assignee received income taxable in Russia on a self assessment basis (e.g., payment of trailing expenses, stock income for work in Russia, etc.) which was not reported on a Russian tax return.


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Economic employer approach1

Do the taxation authorities in your country adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in your country considering the adoption of this interpretation of economic employer in the future?


Generally, Russia has not adopted tax laws on economic employer approach yet. Commentaries to OECD Model Tax Convention do not have a status of law in Russia. Official clarifications of the Russian financial and tax authorities as well as court practice do use this approach.


De minimus number of days2


Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?


Not applicable.


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Types of taxable compensation

What categories are subject to income tax in general situations?


In general, taxable compensation includes remuneration received in-cash, in-kind, or in the form of imputed income (e.g., under stock based incentive plans). Income received in foreign currency must be converted into Roubles at the rate of the Central Bank of Russia effective on the last day of each month for labor remuneration and on the date of receipt (that is the specific date of the payment) for other income. Income received in-kind is valued at fair market value.


Taxable compensation includes, but is not limited to, the following:


  • wages, bonuses, and commissions
  • allowances (such as, cost-of-living, moving, housing, education, home-visit, etc.)
  • reimbursement (or direct payment at the expense of employer) of employee’s expenses/ income tax/ employee portion of social security contributions, etc.
  • employer paid rest and recreation costs, home flights
  • employer provided housing
  • income under stock based incentive plans (e.g., acquisition of stock at no expense or at an expense lower than the fair market value)

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Tax-exempt income

Are there any areas of income that are exempt from taxation in Russia? If so, please provide a general definition of these areas.


Business trips


Reimbursement by an employer in Russia of employees’ business trips expenses within certain limits, provided these expenses are properly documented in accordance with Russian legislation.


Medical treatment


Fees paid by an employer in Russia from its after-tax-profits for medical treatment of its employees, their spouses, parents, and children in licensed medical centers.


State pensions


State pensions awarded in accordance with the statutory procedure established by Russian law.


State benefits


Certain state benefits (such as unemployment allowance, maternity allowance within certain limits, etc.) payable in accordance with Russian law.


Compensation of injuries


Compensation of injuries paid in accordance with Russian legislation.


Private medical insurance


Contributions of organizations under private medical insurance contracts in favour of individuals.


Non-state pension funds


Employer contributions to properly licensed Russian non-state pension funds.


Employer paid education expenses


Fees paid by an organization for education of an individual (e.g., employer paid children education) in licensed educational organizations.


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Expatriate concessions

Are there any concessions made for expatriates in Russia?


Tax non-resident expatriates may enjoy taxation of their remuneration under a “highly qualified specialist” regime at the rate of 13 percent rather than 30 percent. This regime provides for a number of other non-tax benefits.


Income of diplomats, consuls, administrative and support staff, as well as their family members who do not hold a permanent residency permit and members of international organizations are exempt from taxation in Russia, unless the income relates to an activity other than their duties within these organizations.


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Salary earned from working abroad

Is salary earned from working abroad taxed in Russia? If so, how?


Salary of tax non-resident executive directors of Russian companies is subject to Russian income tax irrespective of the place of their work.


Tax residents are subject to Russian income tax on their worldwide income. A foreign tax credit may be claimed in Russia under a relevant DTT with regard to salary for work abroad.


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Taxation of investment income and capital gains

Are investment income and capital gains taxed in Russia? If so, how?


“Capital gains” are subject to income tax. In particular, taxation of proceeds from the sale of property depends on the tax residence status of an individual in the year of sale, the type of property sold and the property ownership period prior to sale.


For example, disposal by a tax resident individual of property (except for securities and derivatives) held for three years or more does not create any taxable income for the individual (i.e., the total amount of sale proceeds is exempt from tax).


Proceeds from the sale of property (except for securities and derivatives) located in Russia by a Russian tax non-resident are taxable in full (no deductions are available) at a rate of 30 percent.


Proceeds from the sale of securities and derivatives may be reduced for tax purposes by acquisition expenses, expenses incurred during the holding period and sale. All expenses must be supported by confirmation documents. Other deductions may also be available. Special rules are established for loss carry forward (available only with regard to securities and derivatives tradable at stock exchanges and specific Russian securities).


For proceeds and expenses received/incurred in foreign currency an equivalent in Russian roubles must be calculated for tax purposes based on the official exchange rate of the Central Bank of Russia effective on the day when expense was incurred and income was received. As a result, in such cases taxpayers bear currency risk (e.g., due to exchange rate fluctuation a loss from transaction in original foreign currency may result in taxable income in rouble equivalent).


Dividends, interest, and rental income


Dividends


All dividends received by residents are subject to personal income tax at the rate of 9 percent. Dividends received by non-residents from Russian legal entities are taxed at the rate of 15 percent.


Special rules are established for taxation of dividends paid by Russian organizations to foreign nominal shareholders. If the ultimate shareholder is not disclosed, the tax should be withheld at a rate of 30 percent.


Interest


  • Interest (coupon income) received by residents is subject to personal income tax at the rate of 13 percent. Interest income received by non-residents from a Russian legal entity, Russian individual entrepreneur, or from a foreign legal entity in connection with activities of its division(s) in Russia are taxed at the rate of 30 percent.
  • Interest on deposits in Russian banks is tax-exempt within established limits (e.g., up to 9 percent of annual interest rate for deposits in foreign currencies). Interest exceeding the limits is taxable at a rate of 35 percent in the hands of tax residents (30 percent in the hands of tax non-residents).

Rental income


Rental income received by tax residents is subject to personal income tax at the rate of 13 percent. Rental income derived by tax non-residents from property located in Russia is taxable at the rate of 30 percent. Rental expenses (e.g., mortgage interest, maintenance and utilities costs) are generally not deductible for tax purposes.


Gains from stock option exercises


Generally, the difference between the fair market value of the stock and the exercise price is considered as taxable income and is taxed at the rate of 13 percent for tax residents and 30 percent for tax non-residents (if the gain is considered as Russian source income).


Special rules are established by Russian regulations with regard to determination of fair market value.


Foreign exchange gains and losses


Generally, if currency exchange transactions are made with an aim of deriving profits, each exchange operation is considered as sale of property. A loss under one exchange transaction cannot be credited against a gain under another transaction. Such gains are taxable at the rate of 13% for tax residents. Non-residents are taxable at the rate of 30% if the gain is considered Russian source income.


Principal residence gains and losses


General rules on taxation of proceeds from the sale of property apply.


Capital losses


Losses and gains from sales of listed securities within one calendar year can be netted subject to certain limits. Losses from sales of listed securities can be carried forward to next years (up to 10 years).


Personal use items


General rules on taxation of proceeds from the sale of property apply.


Gifts


Gifts received from legal entities and individual entrepreneurs for a total value of less than RUB4,000 per year are tax-exempt. The value of such gifts exceeding the threshold is subject to personal income tax at the rate of 13 percent for tax residents and 30 percent for tax non-residents.


Any gifts between family members and close relatives are tax-exempt.


Gifts of immovable property, vehicles, securities and shares between individuals who are not family members or close relatives are taxable at the rate of 13 percent for tax resident recipients and at the rate of 30 percent for tax non-residents.


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Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Russia? If so, please discuss?


There is no additional CGT in Russia.


Are there capital gains tax exceptions in Russia? If so, please discuss?


Not applicable.


Pre-CGT assets


Not applicable.


Deemed disposal and acquisition


Not applicable.


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General deductions from income

What are the general deductions from income allowed in Russia?


Tax resident individuals may be entitled to the following main tax deductions from their income taxable at the rate of 13 percent.


Standard tax deductions


  • RUB1,400 per month for first and second child (RUB3,000 if the child is disabled).
  • RUB3,000 per month for third and each next child.

The deductions apply until the parent’s cumulative annual income exceeds RUB280,000.


These deductions are granted in a double amount if the other parent waives its right to claim the deduction or if the parent is single.


Social tax deductions


This type of tax deductions relate to expenses incurred by a taxpayer.


  • Donations to Russian charitable organizations and other qualified organizations in the amount up to 25 percent of the individual’s annual income taxable at 13 percent.
  • Tuition fees paid to certified educational organizations for education of children and siblings up to RUB50,000 per child/sibling per year.
  • Qualified medical expenses, cost of medical insurance, pension contributions and tuition fees own education – up to RUB120,000 per year.
  • Qualified cost of expensive medical treatment – in full amount.

Property-related tax deductions


  • Up to RUB2,000,000 of expenses on the construction or purchase in Russia of a residential houses, apartments, rooms and land plots for residential construction.
  • Up to RUB3,000,000 of interest paid on loans used for such construction or purchase.

This deduction is available once in a life time.


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Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Russia?


Current year gross up and roll-over methods are used for personal income tax reimbursements.


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Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Russia? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.


Withholding


Tax agents which pay income (exceptions apply to some types of income) to individuals are required to withhold income tax and remit it to the Russian finance authorities. Tax agents include individual entrepreneurs, Russian legal entities, and Representative offices/Branches of foreign legal entities registered in Russia.


Income tax from salary is withheld and remitted to the finance authorities on a monthly basis.


Individuals who receive remuneration from outside Russia are personally responsible for income tax compliance and pay tax from such income on a self assessment basis. Tax prepayments during a year are not required in such cases.


Pay-as-you-go (PAYG) withholding


Not applicable.


PAYG installments


Not applicable.


When are estimates/prepayments/withholding of tax due in Russia? For example: monthly, annually, both, and so on.


Tax agents are generally required to withhold income tax every time when income is paid to an individual or to third parties on behalf of the individual.


Tax payable based on the individual tax return is generally due by 15 July of the year following the reporting year.


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Relief for foreign taxes

Is there any Relief for Foreign Taxes in Russia? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?


Relief for foreign taxes may be available in Russia only if it is provided by the effective double tax treaty.


To support a credit for foreign taxes, an individual should submit to the Russian tax authorities a statement of income received and income taxes paid in the foreign country. To support an exemption or a lower tax rate under the treaty, the individual should submit a confirmation of tax residence in the foreign country and confirmation of income received and income taxes paid in the foreign country, if applicable. In both cases, documents must be endorsed or issued by the relevant foreign tax authorities, authenticated (e.g., by means of an Apostile) and translated into Russian with the translation being certified by a notary public.


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General tax credits

What are the general tax credits that may be claimed in Russia? Please list below.


Not applicable.


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Sample tax calculation3

This calculation assumes a married taxpayer resident in Russia with two children whose three-year assignment begins 1 January 2012 and ends 31 December 2014. The taxpayer’s base salary is USD100,000 and the calculation covers three years.


2012
USD
2013
USD
2014
USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1 = RUB30.


Other assumptions


  • All remuneration and benefits are attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • The company car is used for business and private purposes (50/50).
  • The employee is deemed resident throughout the assignment.
  • Tax treaties are ignored for the purpose of this calculation.

Calculation of taxable income


Year-ended 2012
RUB
2013
RUB
2014
RUB
Days in Russia during year 365 365 365
Earned income subject to income tax
Salary 3,000,000 3,000,000 3,000,000
Bonus 600,000 600,000 600,000
Cost-of-living allowance 300,000 300,000 300,000
Net housing allowance 360,000 360,000 360,000
Company car 90,000 90,000 90,000
Moving expense reimbursement 600,000 0 600,000
Home leave 0 150,000 0
Education allowance 90,000 90,000 90,000
Interest income 180,000 180,000 180,000
Total earned income 5,220,000 4,770,000 5,220,000
Other income 0 0 0
Total income 5,220,000 4,770,000 5,220,000
Deductions 0 0 0
Total taxable income 5,220,000 4,770,000 5,220,000

Calculation of tax liability


2012
RUB
2013
RUB
2014
RUB
Taxable income as above 5,220,000 4,770,000 5,220,000
Russian tax thereon 678,600 620,100 678,600
Less:
Domestic tax rebates (dependent spouse rebate) 0 0 0
Foreign tax credits 0 0 0
Total Russian tax 678,600 620,100 678,600



1Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.


2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.


3Sample calculation generated by KPMG Limited, the Russian member firm of KPMG International, based on the Russian Tax Code of 1998 (part 1), 2000 (part 2), and subsequent amendments.



© 2014 KPMG Limited, a company incorporated under the Guernsey Companies Act and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

 

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Taxation of international executives