Personal Income Tax Liability of Expatriate Employees in Russia
Taxation of expatriate employees in Russia is regulated by Russian legislation. However, if the expatriate’s country of residence had a double Tax Treaty with Russia, the provisions of the double Tax Treaty should prevail.
In accordance with Russian legislation, expatriates both permanently residing in Russia and those who do not have permanent residence in Russia are sub-ject to Russian personal income tax.
Taxation of Expatriates Who Have No Permanent Residence in Russia
Expatriates are considered to have no permanent residence in Russia if they stay in Russia for less than 183 days in a calendar year. In accordance with Russian legislation these expatriates are subject to personal income tax on income earned only from sources in Russia. Personal income tax is then with held at the source of income.
Pursuant to the majority of Double Tax Treaties, income earned by expatriate who have no permanent residence in Russia may be partially or fully exempt from taxation in Russia. To use such an exemption, an expatriate should submit a special request to the tax authorities, otherwise the company paying îň income should withhold personal income tax at the source.
Personal income tax withheld in Russia may be offset against tax to be paid in the country of the expatriate's permanent residence. Expatriates without permanent residence status do not have to submit personal income tax returns to the Russian tax authorities.
Taxation of Expatriates Permanentlt Residing in Russia
Expatriates are considered permanently residing in Russia if they stay in Russia for more than 183 days in a calendar year. These expatriates should submit personal income tax returns to the tax authorities and pay tax calculated on the basis of these returns.
Taxable income of expatriates includes salary, bonuses and different kinds of reimbursements and allowances earned from sources located both in Russia and abroad.
If, in accordance with the labor contract concluded between an expatriate and his/her employer abroad, the employer is obliged to make personal income tax payments for the expatriate, these amounts should be included in the expatriate's taxable income.
The following items are not taxable for expatriates:
- Social Security and Employee Pension Contributions made to state funds
both in Russia and abroad;
- Housing expense reimbursement;
- Reimbursement for using personal vehicles for business purposes; and
- Business trip expense reimbursement.
Personal income tax should be calculated in roubles. Therefore, income earned in foreign currency should be translated into roubles at the exchange rate of the Central Bank of Russia as at the date the income is received.
Rates used to calculate personal income tax range from 12% to 30% for income earned in 2000, depending on the amount earned. A uniform rate of 13% is expected to be established in the future.
Personal income tax returns can be filled out by the expatriate or by his/her authorized representative, acting on the basis of a Power of Attorney drawn up in accordance with current statutory legislation. These returns should be sub-mitted to the local tax authorities in the district where the expatriate resides or where the Russian host company is located.
There are two types of returns to be submitted by the expatriate:
- preliminary personal income tax return indicating expected income;
- final personal income tax return indicating income actually earned in a particular year.
The expatriate should lodge a preliminary personal income tax return with the tax authorities within one month of his/her arrival in Russia if he/she expects to stay in Russia for more than 183 days in that calendar year.
The final personal income tax return should be submitted to the tax authori-ties no later than 30 April of the year following the reporting year. If the expa-triate expects to stay in Russia for more than 183 days of the year following the reporting one, the preliminary personal income tax return for this year should be submitted together with the final personal income tax return for the previ-ous year.
If the expatriate leaves Russia before the end of the year, he/she should pro-vide the tax authorities with his/her final personal income tax return at least I month before his/her departure.
Paying Personal Income Tax
Based on the submitted preliminary personal income tax return, the tax authorities estimate the advance payment, which should be made in three equal portions by 15 May 15 August and 15 November. Personal income tax should be paid in roubles. All payments should be effected in accordance with the preliminary tax assessment issued by the tax authorities. Personal income lax should be paid in roubles.
On the basis of the final personal income tax return, the tax authorities issue a final tax assessment based on the income actually earned. Additional pay-ments necessary in accordance with this re-calculation should be made with-in 1 month of receiving the final tax assessment. If the total of advance amounts paid exceeds the actual tax liability the excess may either be refund-ed to the expatriate or offset against future payments. In accordance with the Tax Code of Russia, tax refunds are paid in roubles only.
It should be noted that personal income tax paid abroad by expatriates per-manently residing in Russia in accordance with the legislation of other coun-tries can be offset against their income tax liability in Russia. The amount sub-ject to offset cannot exceed the amount of tax calculated on the basis of the same amount of income at the rates stipulated by Russian legislation.
Saint Petersburg Business Guide. Official Edition.
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