Payment of Personal Income Tax in Russia by a Foreign Individual
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Payment of personal income tax is a common duty for everyone engaged in paid work. In Russia, however, it has become a tricky issue for foreign individuals who work in Russia for a considerable period throughout the year but are not tax residents of Russia and do not have labor relationships with Russian companies or representative offices of foreign companies in Russia.
Individuals who are not tax residents of Russia but receive income from sources in Russia are recognized as taxpayers of personal income tax pursuant to Article 207 of the Tax Code of the Russian Federation (hereinafter — the “Tax Code”).
The Tax Code has separate concepts of “source of income” and “source of payment of income.” The company or individual from which a taxpayer receives income, pursuant to provisions of Article 11 of the Tax Code is the source of payment of income. The source of income pursuant to Article 208 of the Tax Code is the relevant income-earning activity within the territory of Russia.
Based on the above, even if a foreign individual is not a tax resident of Russia and has no labor relationship with a Russian company or representative office of a foreign (non-Russian) company on the territory of Russia (for example, a foreign individual is an employee of a Swedish company without a representative office in Russia but performs his labor duties for the Swedish company on the territory of Russia), he should pay Russian personal income tax.
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A tax resident is an individual residing in Russia for not less than 183 calendar days throughout 12 consecutive months pursuant to Article 207 of the Tax Code. Each period of stay is calculated from the date of arrival until the date of departure.
It is important to know that most international agreements on avoidance of double taxation stipulate presence in either country for more than 183 days within one calendar year.
For revenues of tax nonresidents, the tax rate of 30 percent is applied (Article 224 of the Tax Code). The amount of due tax is calculated as a percentage of the amount of income. That amount must be calculated and paid by the foreign taxpayer himself.
If you are certain that you are a taxpayer of personal income tax under Russian legislation, you may file the tax declaration, as well as the relevant documents confirming your status and income, with the Tax Inspectorate responsible for the district in which you are registered.
The tax declaration has to be filled out in Russian on a standard form. The form of the declaration can be downloaded from the web site of the Russian Federal Tax Service (www.nalog.ru).
At first glance, the procedure for declaring and paying personal income tax might seem to be quite clear; however, when dealing with these issues in practice one often faces several difficult problems, for instance:
1. Although the deadline for submitting the tax declaration to the Tax Inspectorate is April 30 of the year following the year for which the tax is to be paid, when a foreign individual is planning to terminate his taxable activity and move out of Russia during the calendar year, the tax declaration for the current year is to be submitted no later than one month prior to the individual’s departure from Russia.
2. Despite the fact that the deadline for paying the tax is July 15 of the year following the year for which the tax is to be paid, when a foreign individual terminates his taxable activity on the territory of Russia during the calendar year and submits a tax declaration in this connection, the tax for the current year should be paid no later than 15 days after submitting the tax declaration.
3. The obligation to pay the tax in Russian rubles only, as well as the necessity to pay it either by wire transfer from the individual’s Russian ruble bank account opened in Russia or in cash at any bank office, results in foreign individuals seeking a way to legally transfer the payable amount of tax to Russia.
The problem is solved by authorizing a representative to deal with the tax issues, including payment of tax.
If the Russian Inspectorate knows that a representative pays the tax at the expense of the representative’s own means, there is a risk that the tax will not be considered paid. That is why it is very important to indicate in payment orders or other documents concerning payment of tax on income the details of the foreign individual who is the actual taxpayer in the given case.
4. If a foreign individual submits a tax declaration after the set deadline, the Tax Inspectorate may impose a fine. If the Tax Inspectorate finds a mitigating circumstance, it can reduce the size of fine by a minimum of 50 percent. The minimum possible size of a fine in such a situation is 100 rubles.
5. Most foreign individuals are convinced that if they pay personal income tax in Russia, for instance, at the rate of 30 percent, they are not subject to payment of personal income tax on the same income in their home country, where the rate can be as high as 50 percent. This does not work in all cases. To clarify the matter, it is advisable to check the corresponding agreement on avoidance of double taxation between Russia and the country of residence of the foreign individual.