Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Ask a Stupid Question

If I invest in a pension plan, what taxes do I have to pay?

Olga Boltenko, tax lawyer with LeBoeuf, Lamb, Greene & MacRae, writes:


Many expats supplement guaranteed state pensions from their home country with private pensions. Pension investments are made to a non-state pension fund located either in Russia or, more often, abroad.

People usually enroll in voluntary pension schemes to take advantage of special tax incentives offered in many countries.

Generally, non-state pensions can be taxed either when an expat makes contributions or when the pension is paid -- or both.

Under Russian tax law, if an expat invests in a non-state pension, taxation depends on where the pension fund is located and on who makes the investment.

When the investments are made to a Russian pension fund, the tax is paid as follows: If the contributions made by an expat directly, they are made from after-tax income; the pension paid after the employee retires is not taxable.

However, if the recipient of a pension is different from the contributor, the pension paid on retirement will be subject to income tax. The rate of tax will be either 13 percent or 30 percent depending on tax residency.

If pension contributions are made by an employer on behalf of an employee, the contributions are not taxable as a benefit to the employee, but the payout upon retirement will be subject to income tax.

If a pension fund does not have a Russian license, and the majority of foreign pension funds do not, then the pensions may be taxed twice. When contributions are made by a Russian tax resident, they are made from after-tax income. The pension payouts themselves will also be subject to 13 percent income tax.

Contributions can be made by a foreign company to a foreign pension fund on behalf of a Russian-based employee. The contributions will be treated as an employee benefit, and therefore subject to tax, if the employee is a Russian tax resident. If the employee is not, Russian tax liability will be triggered only if the contributions are linked to work performed in Russia.

The pension payouts will also be taxable in Russia if an employee is a Russian tax resident. However, if the employee resides elsewhere, the payouts will not be taxable in Russia.

If the contributions to a foreign pension fund are made by a Russian company, the company has to withhold income tax from the contribution. The rate will be 13 percent or 30 percent depending on tax residency. The pensions will be taxed again, upon payout, if the employee is a Russian resident or if there is a link to work performed in Russia.

E-mail your personal finance questions to: stupidquestion@imedia.ru