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. Last Updated: 07/27/2016

For Foreigners, The Gold Rush Is Almost Over

Over the last several years, Russia has given foreigners a taste of America's Old West. But now, the party is over and the sheriff has come to town. This is not to say that Russia now has crime under control: On the contrary, the power of criminal groups -- mostly neckless thugs -- grows unabated. It is not even to suggest that Russia now has in place the key elements of infrastructure for a capitalist nation. After all, the country does not even have capital. But in two key ways that are important to residents of Moscow's large foreign community, authorities are getting their act together. They are closing the net on tax cheats and requiring firms to justify hiring foreign staff over locals. In the post-perestroika past, foreigners likened life here to the gold-rush-era Klondike. They savored the irony of entrepreneurs coming to formerly Communist Russia to make their fortunes. For years foreigners lived and worked here with bogus visas, paid little or no taxes, paid comically low rents, and even built businesses based on these warped economics. And while foreigners complained about lawlessness, who could deny that there was a certain sense of excitement to this place they dubbed "The Land of Possibilities"? Technically speaking, Russia never was a tax haven. Yet for thousands of foreigners, in practice, it was. A tax official noted recently that he was not aware of a single foreigner who had been prosecuted for income tax evasion. Nor am I. Expect that to change. Over the next 12 months we should begin hearing about foreigners approached by tax authorities for back taxes. Penalties are stiff -- they start at 100 percent and do not depend on intent. Western tax specialists are almost unanimous in their warnings of the looming crackdown. Granted, accountants have something to gain from having thousands of foreigners flock to their doors for help with their tax returns. But the threat is real. The U.S. government, for example, recently agreed to turn earnings information over to Russian tax authorities. This means that if you want to deceive Russia, you now have to deceive the U.S. government. But even for those who pay their taxes, this is vaguely unsettling. Assuming tax collectors are prepared to use this information, they will undoubtedly single out foreigners for special scrutiny. In a country with so much corruption and in which foreigners are so much wealthier than the average Russian, such cooperation is not welcome. Knowing from experience the large gap between how things are supposed to be done here and how they are actually done, many foreigners have a legitimate fear that this information could be put to criminal use. The work permit is another reasonable requirement that is presently nothing more than an additional step companies must take before they can hire foreign employees. If nothing else, it marks the end of the era when Russia not only did not know, but could not know how many foreigners were living and working here. This new regime will undoubtedly be a signal for some foreigners to leave. When profit margins are built on tax avoidance and illegal hiring then the business must die. As well it should. For these prospectors of the Russian Klondike of the early 1990s, the vein is played out.