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Tax residency in Russia, everything you need to know
The difference between right and wrong can end up doubling the amount of
taxes you pay, barring you from new investments and greater freedom to handle
your wealth.
Generally, the best tax residency options are small-sized, offshore
jurisdictions, far away from your primary operations.
But they have two problems. First, they are considered tax havens, most
don’t have many double taxation treaties, and many OECD countries will raise
their eyebrows when they see you’re a tax resident in one of these
jurisdictions.
That’s not a problem for many entrepreneurs (and, indeed, not for us),
but others may want a more secure, onshore option.
And, believe it or not, Russia is one of those options.
Relocating your tax residency to Russia provides you with:
- 13 % income tax rate and top 20 % corporate tax rate.
- An extensive double tax treaty network with 80 agreements.
- Access to dozens of different markets and regions (Eastern Europe,
Central Asia, the Caucasus, the Balkans, Middle East, Far East, the North
Pacific, etc.).
- A fantastic, solid, and steady banking system (if you want to check out
our banking services in Russia, read our article.
- The 27th easiest country to do business on the planet with a
swift incorporation process.
The Slav giant enjoys a fantastic tax system with a flat 13 % income tax
rate and a top 20 % corporate tax rate. The overall tax burden is around 24 %,
which is significantly lower than the OECD average, which is close to 40 %.
Russia is low-key, one of the best onshore options in Eurasia for tax
residency.
And that’s without counting its fantastic banking system and its
geographical closeness to many different markets (Eastern Europe, Central Asia,
Middle East, China, and the Far East) because Russia is the largest country on
the planet and one of the main drivers of the world’s economy.
Sometimes you’re interested in doing business in a certain country or
region, but relocating your tax residency to that place may not be too
beneficial. That’s quite common when you do business in Europe.
But that’s not the case with Russia. If you have significant business
interests in Russia or are a skilled high-level worker that’s required to move
there, you can rest easy. It’s a terrific tax residency destination.
Tax residency
in Russia
The criteria for tax residency in Russia is
simple.
For individuals, it’s the physical presence in
Russia for at least 183 days during a calendar year. Some double tax treaties
may modify the criteria for tax residency, generally considering the following
elements to determine it:
- Permanent domicile
- Personal, economic, and any
other relevant relations
- Nationality
For corporations,it’s a bit more complex.
Generally, the presence of a branch or a permanent establishment is sufficient
to satisfy the criteria. For example, if the company only opened a bank account,
then there is no residency. “Permanent establishment” isn’t a univocal term,
which means it is necessary to look at the presence of income from Russian
sources as well as the agreements on the avoidance of double taxation. Russia
will be recognized as the place of effective management if one of the following
conditions applies:
- An executive body of a foreign
company carries out most of its management activities in Russia.
- The chief executive officers
carry out the executive management of the company in Russia.
If one of these criteria is satisfied in Russia
and another jurisdiction, the company must also prove it does one of these in
Russia:
- Main bookkeeping and
management reporting.
- Primary HR management.
Non-resident individuals are taxed exclusively
on their Russian-sourced income. However, it must be noted that for individual
non-residents, income is taxed at 30 % instead of the regular 13 % for
residents. We’ll explain that further ahead.
Residents are subject to taxation over their global
income. However, they can benefit from its extensive double tax treaty network,
which includes treaties with most European countries, the US, Canada, Japan,
China, India, South Korea, and even some Latin American countries such as
Argentina, Chile, and Mexico.
Non-resident companies are only taxed from their
Russian-sourced income, which means that companies doing international
businesses from Russia, and little-to-none business in Russia itself, are
virtually tax-free.
The Russian
tax system
The Russian tax system is relatively simple, as
it has a fewer number of payments and processing times than the average OECD
country. Moreover, there aren’t many
different individual taxes, as virtually all income is taxed at the same 13 %
rate.
Individual taxes
The taxable income in Russia is all income from
any sources for residents and only Russian-sourced income for non-residents.
As we said, all income is added to the income
tax rate, meaning Russia doesn’t apply distinctive capital gains, dividends, interests, or rental income, taxes at different
rates. Everything is taxed at 13 % and must be included in the federal income
tax declaration.
For residents, the
following income is taxed differently from the normal 13 % tax rate:
- Interest
income over five points above the Central Bank’s interest rate for deposits in
rubles or 9 %
over the annual interests for deposits in foreign currency (35 %).
- Income
from awards and prizes won from contests, games, and similar affairs (35 %).
This means relocating
your personal tax residency to Russia can bring significant benefits. For
example, earning $200k in employment income in Russia would mean $26k in taxes,
before even considering exemptions, which are varied and can lower the total taxable
income significantly. That same income would mean $73k in income tax in the UK, which isn’t even among
the most tax heavy countries in Europe. And that’s even before considering
other taxes that in Russia are also taxed at 13 %: capital gains (18%-28%),
dividend income (32%-38%), among others.
Being a non-resident
in Russia is not too beneficial, as they must pay a 30 % income tax rate for
any Russian-sourced income. The following income is taxed differently:
- Dividends
from Russian companies (15 %).
- Income
of highly qualified foreign professionals with a monthly salary of over 167k
rubles, or refugees (13 %).
What income is tax-exempt?
- Reimbursements
for expenses regarding work-related change of domicile and business travel.
- Compensations
for injuries and diseases contracted in work.
- Severance
payments.
- Income
from Russian state pensions.
What deductions are available?
- Pension
contributions to licensing plans up to 120k rubles per year.
- Charitable
contributions up to 25% of the taxable income.
- Educational
expenses of the taxpayer (up to 120k rubles) and their children up to 50k
rubles per child.
- Expenses
to buy or build a residence (two million rubles) and payment of loan interests
(three million rubles). This can only be done once in a lifetime.
- Medical
expenses for the taxpayer and direct relatives.
- 1.4k
rubles per month for the first two children and 3k rubles per month from the
third child.
- Foreign
tax relief up to the amount payable in Russia.
- Income
from the sale of property that has been owned for at least five years.
- Particular
exemptions under double tax treaties (for example, Israelite citizens have
an exemption over selling securities).
Corporate taxes
All income of a company is taxable. There are no
specific capital gains, interests, orroyalties taxes but one single corporate
tax rate, meaning almost all income is taxed at the same rate. The applicable
corporate income tax is 6-7 % for the simplified tax system (for certain SMEs
with revenues under 150 million rubles, which is about 2.5 million dollars) and
20 % for most companies in the general tax system. The revenues from the tax
payment are distributed as follows: 3% for the federal government and 17 % for
the regional government, which can reduce the tax rates for specific categories
of companies.
You’re probably wondering what’s the case with
different corporate structures such as representative offices, sole traders,
and LLCs. Let’s explain some of that:
Representative office: These structures don’t conduct business in
Russia. They only undertake representation, marketing, and similar activities,
meaning they only carry out expense transactions, and they don’t make any
profit. Thus, they don’t pay any taxes in Russia.
Sole traders: Foreigners can be sole traders/individual
entrepreneurs in Russia, and they fall under the special income tax regime,
meaning they pay 6% or 7% in taxes (depending on the case). A residence permit
and registration are requiredto obtain the individual entrepreneur status.
If you want to know more about how Russia as a business center, please visit our Country Focus.
LLC: Foreigners who own a Russian LLC pay a 15 %
income tax rate from the company’s dividends, but the rate can be reduced if
there are double tax treaties. For example, many countries, such as Cyprus and
Austria, have a 5% rate. These provisions also apply for foreigners who are
UBOs of a PIF.
There are two significant taxes aside from the
corporate tax. First, the property tax rate, which is a maximum of 2.2%.
Second, the dividend income earned from Russian companies, which is taxed at
13%, instead of the regular 20% for corporate income.
Capital gains have an amazing exemption as sales
and redemption of shares in Russian entities can leadto a full tax exemption
under certain circumstances.
There are also tax relieves for foreign taxes up
to the Russian tax liability of the company.
There are also some fantastic tax incentives for
companies in Russia. Many different regions offer incentives for large
investors in priority industries. Most of them are in the form of special
economic zones, or advanced development zones, which have the following
benefits:
- 0 % corporate tax rate on the
federal portion of the tax for five years.
- Reduced regional portion of
the corporate tax.
- Reduced social contributions
(7.5% instead of 30%) for ten years.
Who are we,
and what can we do for you?
In Mundo, we have 25 years offering top
financial, immigration, and corporate advice all over the world.
We have an exceptional team of experts in Russia
that can help you with moving your tax residency to this economic giant and
offer tax advice if you have economic interests in Russia.
Russia is a terrific tax residency relocation
destination. It offers a comfortable lifestyle with a deep culture, one of the
biggest markets in the world with access to numerous regions, an extensive tax
treaty network, and a personal income tax rate that’s more than three times
less than in several western countries.
Establishing your business’ tax residency in
Russia can also help you reduce your taxes thanks to the varied special zones
in the country and the simplified tax system.
In any case, Mother Russia can bring significant
tax relocation benefits while you can keep your western comfort and work from
one of the main business centers on the planet.
If you want more information about the Russian
tax system and tax residency, all you need to do is contact us right now.
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