Tax Residence

Individual taxes in Russia are applied under the principle of residence, therefore, foreign citizens legally residing in this nation for more than 183 days a year become tax residents. Tax residents in Russia are foreign specialists who work on an employment contract basis, regardless of the length of their stay. The tax on the income of foreign citizens who are not tax residents of Russia is 30%, whereas this tax is only 13% for Russians. This measure serves to protect the labor market from unskilled labor in countries such as Moldova, Ukraine, and the Central Asian countries.

However, there are legal ways in the country's legislation to reduce the tax burden on foreign citizens, and in some cases, to avoid taxation altogether.

For example, if you sign a contract with a Russian company as a highly qualified specialist (which includes managers), your tax will be 13%, regardless of the number of days you reside in Russia. Obtaining dividends from a legal entity located in Russia in which you participate is another option, in which case, there is a single tax rate of 13 % for residents and 15 % for non-residents. An interesting alternative is working as a self-employed person as this form of activity has a simplified tax scheme, which accounts for 6 % of total income or 15 % with a deduction from the tax on expenses.

Additionally, the self-employed are required to pay a social tax, which is a fixed rate equivalent to about USD 500 per year. This arrangement can be applied to individual entrepreneurs whose income does not exceed 150 million rubles per year, which is approximately USD 2.4 million. Since the status of a self-employed person is governed by the place of residence, the foreigner who wishes to obtain this status must hold a temporary or full residence permit, i.e. a form of legal residence. It should be noted that termination of residence in Russia does not imply deprivation of self-employed status.

In some cases, Russia's double taxation agreements with other countries allow for tax relief. The country has established agreements of this type with 87 countries and some of them provide tax benefits for investors. For example, residents of Greece pay 10 % tax, instead of 15 % when withdrawing dividends from companies operating in Russia. If Greek residents control the company completely, the rate is reduced to 5 %. Also, tax residents from Israel pay a preferential rate of 10 %.

If an Israeli resident enjoys a 10-year tax holiday in his home country as a new returnee, income from dividends or sales of shares can completely avoid taxation, provided that the payment of dividends is made by a company that is not a tax agent in Russia. Therefore, only investors who work independently on the stock markets or receive income from share quotas will be able to avoid the tax burden.

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