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. Last Updated: 07/27/2016

May 3 Is New Day For Expat Tax Filing




It's March. That means Russian tax time is just around the corner, and for expatriates it raises an eternal question: To file or not to file.


At least there is more time to ponder that question this year - the tax filing deadline has been pushed back to May 3, more than a month later than it was last year. Apparently the authorities have tired of all of the April Fool's jokes associated with an April 1 filing deadline.


But in other aspects, this year's tax situation shares some of the ironies of previous years. Obeying the law means paying taxes; but trying to do so is sometimes more likely to get a would-be taxpayer into trouble than not trying.


"It is much easier to target a taxpayer who has filed a return, than to try to find one who has not," said Tim Carty, a personal tax consultant with Arthur Andersen in Moscow.


He said unofficial figures showed roughly 7,500 expats filed tax returns in Moscow last year. Estimates of how many expats from Western countries live in Moscow are notoriously hard to come by, but one figure bandied about these post-August 1998 days is about 20,000.


Tax Inspectorate officials contacted Thursday declined to give any figures for tax compliance rates. They would only offer the total number of personal tax declarations filed last year, which was 4 million for the nation; the vast majority of Russian citizens have their taxes taken out of their paychecks automatically and so don't have to file.


Many foreigners evade Russian taxes for years before finally screwing up the courage to face the tax man here, one tax official said.


"People come in and want to file declarations for 1997 or even 1996, usually because they are having some kind of trouble with the tax service in their home country," said Igor Nikiforov, head of the Moscow Tax Inspectorate's department for foreign taxpayers.


He said the most common reason for assessing tax-related fines against foreigners were for late declarations, rather than for misstatements, intentional or otherwise.


Nonetheless, by all accounts the tax authorities are also becoming more exacting in handling expat tax declarations.


"There is an increasing burden on the expatriate taxpayer to provide ever more documentation to substantiate statements made on their tax declaration," Carty said. "Demanding the submission of additional documentation beyond the return itself is tantamount to auditing every foreigner even before they have provided any basis to suspect they have committed tax evasion."


The procedure for filing key tax deductions exclusively available to foreigners, such as the subtraction of an employer's reimbursement of housing expenses from total income, has become more complicated this year, tax consultants said.


"In the past, getting the housing deduction was easy, because the inspectorate did not ask for confirmation [of the amount declared]," said Dinar Akhmetov, a tax consultant with Harvey and Associates in Moscow. Now, he said, foreign taxpayers must show their rental contract, receipts from their landlord and an official letter from their employer stating that the amount declared was indeed paid as a housing reimbursement.


Penalties for tax evasion can be severe, although they are rarely enforced to their full extent.


According to Nikiforov, the law dictates that evaders be fined 5 percent of total tax due for each month unpaid for the first six months, and 10 percent per month thereafter. If the amount due is more than 83 minimum wages, or about $3,000, criminal charges can be filed.


"There have been criminal cases opened in the past against foreigners, but I don't think they've jailed anyone," he said, "Usually there is the option of paying the amount owed."


Nikiforov's office appears to be helplessly understaffed to deal with the thousands of foreigners in Moscow.


"We used to have around 10 people, but now we have expanded to about 20," he said.


"To be honest, the Tax Inspectorate is too busy to monitor the expat community in Russia," Akhmetov said.


"Our advice to our clients is to be employed by a 100 percent offshore company, because the Tax Inspectorate will never check what they declare on their forms."