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XII. Personal Income Tax Considerations

Presented by Natalia Prisekina, senior associate attorney and Director of the Vladivostok branch office of Russin & Vecchi.

Taxation of expatriate employees in Russia is regulated by Russian legislation. However, if the expatriate’s country of residence has a double taxation treaty with Russia, the provisions of the double taxation treaty should prevail.

The following physical persons (Russian citizens, foreign citizens and persons without citizenship) are considered taxpayers of personal income tax pursuant to Russian tax legislation (138) :

• residents of the RF for tax purposes: defined as physical persons who spend more than 183 days within the territory of the RF within a calendar year (139), and
• non-residents of the RF for tax purposes: defined as physical persons who spend less than 183 days in the territory of the RF within a calendar year, who receive income from sources in the RF

The tax rate for residents is 13% on income received both from sources in and outside the RF. The tax rate for non-residents is 30% on income received from sources in the RF. The object of taxation for non-residents is only income received from sources in the RF.

Income received from sources within the RF includes remuneration for the performance of labor or other obligations, work performed, service rendered and the performance of activity in the RF, as well as dividends and interest received from a Russian legal entity by both residents and non-residents. (140) Remuneration of directors of an organization, which is a Russian tax resident located in RF, is considered income received from sources in RF, irrespective of the place where management functions were performed and payment was made. (141)

Income received in the form of dividends is taxed at the rate of 6% for both Russian tax residents and non-residents.

Taxes are calculated in rubles; hard currency payments are converted at the RF Central Bank rate on the day received. The tax period for personal income tax is one calendar year.

If, in accordance with the labor contract concluded between an expatriate and his/her employer abroad, the employer is obligated to make personal income tax payments for the expatriate, these amounts should be included in the expatriate's taxable income.

A branch office of a foreign legal entity accredited in Russia is considered a tax withholding agent for the purpose of payment of personal income tax on behalf of expatriate employee taxpayers of this tax, and, as a result, is obligated to calculate, withhold and pay personal income tax from remuneration and dividends (if any) received by expatriates from a branch office, or as a result of their relations with a branch office (142). A branch office must withhold expatriates’ Russian personal income tax from their income at the moment of its actual payment to expatriates. A Russian branch office, as a tax-withholding agent, must provide expatriates’ income data to the tax body at the place of its registration in Russia. (143)

Taxpayers who must file personal income tax declarations are listed in Articles 227 - 229 of the RF Tax Code, and include private entrepreneurs, notaries, as well as tax resident individuals who receive income from sources outside of the Russian Federation or other individuals who receive other income from which tax was not withheld by tax agents. Expatriates who are Russian tax residents and who receive salary and other compensation for work and/or services performed in the Russian Federation (144) are considered as having income from sources in the Russian Federation and the branch or representative office through which they are employed must withhold personal income tax from their salaries. (145)

Individuals, who are not required by law to file personal income tax declarations, have the right to file them with the tax authority at the place of the individual’s residence (for foreigners at the place of their registration in the RF). (146)

Foreign citizens with a right to tax benefits in accordance with a treaty on avoidance of double taxation should file confirming documents with the Russian tax bodies including: proof of residence in the foreign country, a document confirming income received and tax paid in the foreign country, verified by the foreign tax body (147). A Russian branch office may file the necessary documents on behalf of expatriates, as it will act as a tax-withholding agent.

(138) RF Tax Code, Article 207. In accordance with Article 2, Item 1 of the Law on the Legal Status of Foreign Citizens in the Russian Federation, a foreign citizen is defined as a physical person, who is not a citizen of the RF and has proof of citizenship of a foreign country.
(139) Methodical Recommendations, approved by Order No. BG-3-08/415 of the Ministry of Taxes and Levies of the Russian Federation, November 29, 2000, last amended on March 5, 2001, Article 3.
(140) Article 208, Item 1 (Sub-Items 1 and 6) of the RF Tax Code.
(141) RF Tax Code, Article 208, Item 1.6.
(142) RF Tax Code, Articles 214 and 226.
(143) The specific accounting forms for tax withholding agents are attached to Order No. BG-3-08/379 of the RF Tax Ministry.
(144) RF Tax Code, Article 208, Item 1.6.
(145) RF Tax Code, Article 226.
(146) RF Tax Code, Article 229, Item 2; Order of RF Ministry on Taxes and Levies No. BG-3-08/415. Specific procedures for filing personal income tax declarations by physical persons are detailed in the Instruction On Filling In Physical Persons' Tax Declaration (attached to Order No. BG-3-04/592 of the RF Ministry on Taxes and Levies); RF Tax Code, Article 229; and Methodical Recommendation on Application of Chapter 23 of the RF Tax Code (attached to Order No. BG-3-08/415 of the RF Ministry on Taxes and Levies). The forms of declarations are attached to Order No. BG-3-04/592 above (for physical person/non-residents the form of declaration is: 4-NDFL, and expatriate/residents of the RF, the form of declaration is: 3-NDFL).
(147) RF Tax Code, Article 232, Item 2.