Income taxes in Russia are levied at a variable rate depending on residency status. This guide explains everything you need to know.
Expats living within the Russian Federation and non-residents with investments in the country must pay Russian income tax on any earnings from local sources. Income tax rates, however, differ for residents and non-residents. As a rule of thumb, non-residents pay higher taxes in Russia and are not eligible to claim income tax deductions and allowances. Residents, on the other hand, pay income taxes in Russia at a flat 13%.
This guide explains how to file your Russian tax return, with information on:
- Income tax in Russia
- Earnings subject to income taxes in Russia
- How to file your tax return in Russia
- Income tax rates in Russia
- Income tax in Russia for foreigners
- Tax refunds in Russia
- Tax fines in Russia
- Income tax advice in Russia
- Useful resources
Income taxes in Russia
The income tax system in Russia
The Russian Tax Code governs direct and indirect taxes within the country. Overall, Russia’s tax system is characterized by moderate flat or regressive tax rates. Income taxes in Russia are principally levied at a flat rate, with different structures for residents and non-residents.
The Federal Tax Service of Russia (FTS), which is governed by the Ministry of Finance, oversees the administration of income taxes in Russia. Expats and nationals alike need a 12-digit Tax Personal Identification Number (INN). In general, your employer will assist with obtaining the tax number. Foreign citizens are obliged to contact a local FTS office to register for income taxes in Russia. You will need to provide copies of a document that certifies your identity, such as your passport and your Russian residence permit.
You can pay personal income taxes in Russia in two ways. First, withholding at source. This applies to most highly specialized expats working in Russia, who will see their employers deduct taxes from their wages. On the other hand, when tax is not withheld at source, as the recipient you are obliged to file a return.
Income taxes in Russia are paid in rubles at the rate applicable to each income category.
Social security contributions in Russia comprise mandatory insurance contributions for Russian pension insurance, Russian social insurance, and Russian medical insurance for each employee, as well as via contributions for mandatory social insurance against occupational accidents and diseases. These are paid by companies and individual entrepreneurs, as well as by individuals employing other individuals. No mandatory contributions are payable by employees.
Who pays income taxes in Russia?
All foreigners living in Russia and receiving an income from a local source must pay Russian income taxes. Such residents, i.e. people who live in the country for more than 183 days per year, must also declare their worldwide income and file a tax return on any overseas income. Non-residents, on the other hand, are only taxed on Russian-source income.
Individual businesses such as freelancers, contractors, and consultants pay personal income taxes in Russia on their business income whether it arises from a local or international source.
Types of tax-exempt income
Only a few types of income are exempt from personal income taxes in Russia. Such exemptions apply to the following types of income:
- Income on interest from state or municipal securities;
- State pensions;
- Certain social security benefits in Russia (such as unemployment, maternity allowances and injury or professional illness allowances – within limits);
- Interest income on Russian bank deposits held in rubles under certain conditions, and on foreign currency deposits if the interest rate is less than 9% per annum;
- Payments from mandatory insurance in Russia and long-term insurance contracts;
- Income from the sale of Russian property held for more than three or five years (depending on how the property was acquired);
- Reimbursements of employees’ travel expenses within limits, and compensation for the employees’ educational expenses and mortgage interest payments.
Earnings subject to income tax in Russia
Taxes on income and salary in Russia
Anyone resident in Russia, i.e. for more than 183 days per calendar year, must pay tax on income arising from a number of sources, including wages, self-employment, dividends, interest from investments and savings, rents, and royalties. There is no separate capital gains tax in Russia, therefore gains from the sale of property and assets are subject to income tax at the normal rate.
Non-residents pay income taxes in Russia on monies generated within the Federation, such as income received from property located in Russia, dividends received from Russian legal entities, and remuneration for activities performed in Russia (even if paid by a foreign legal entity from abroad).
Taxes on employment benefits
Russian authorities consider employment benefits part of an employee’s taxable income. Such benefits may include in-kind compensation such as company cars and gifts, reimbursements for housing, gains from the exercising stock options, and employer contributions to foreign pension plans. Income received in kind is valued at fair market prices. These are taxed at the personal income tax rate.
Taxes on savings and investments
Interest (coupon income) arising from savings and investments must be included in your income tax return. Like other sources of income in Russia, these are taxed at 13% for residents and 30% for non-residents. Interest on deposits in Russian banks is tax-exempt within established limits (at present, up to 9%), but attracts a higher rate of 30% beyond those limits.
Taxes on investments and dividends
Residents receiving dividend income from investments will need to pay interest at the personal income tax rate. Non-residents, however, pay 15% on dividends received from Russian legal entities.
Special tax rules apply to dividends paid by Russian organizations to foreign nominal shareholders. When the ultimate shareholder is not disclosed, income tax is withheld at a rate of 30%.
Taxes on rental income
If you own property in Russia, any rental income attracts the same Russian income tax rates as other taxable income. Rental expenses such as mortgage interest, utility bills, and maintenance costs are not deductible for income tax purposes.
How to file your tax return in Russia
While it isn’t always necessary to file a tax return in Russia, it is advisable to do so as an expat for two reasons. Firstly, to declare any overseas income you may have. Secondly, all taxes may not have been withheld at the correct rate at the source of payment and paid to the Russian tax authorities, therefore filing a return offers a chance to correct any discrepancies.
It is, however, mandatory for self-employed professionals, registered businessmen, and recipients of other income (outside of a salary) to file a tax return.
You can file a Russian income tax return in different ways. The easiest method is online via the FTS website or using their mobile app, Налоги ФЛ. To register, you will need your universal tax number (INN in Russian, ИНН — индивидуальный номер налогоплательщика) – you can apply for it online but will need to visit a local FTS office to pick it up.
Alternatively, you can file your returns via a number of authorized specialized operators. Additionally, there are also options to pay personally at the local Russian tax office in the city where you live, through a Russian bank account, or by visiting a post office.
You should keep copies of the payment documents and any other tax-related documents for up to four years. After submitting a tax declaration, you can contact the Russian tax authority to check if there are additional taxes, fees, or fines owed.
Income tax deadlines in Russia
The tax year in Russia is the same as the calendar year. Russian income tax returns must be filed by April 30 of the following year. The deadline to pay any taxes is 15 July of the year following the reporting year.
An individual entrepreneur under the general tax regime must make three advance payments: on 25 July, on 25 October, and on 25 January of the tax year. The balance of the tax due is to be paid on 15 July.
Coronavirus income tax deadline extensions
For the 2019 tax year, the deadline to file your Russian income taxes has been extended for three months on account of the COVID-19 outbreak.
Government-imposed self-isolation requirements mean that taxpayers who do not have access to the online office or who are without an electronic signature cannot file their returns in person. With the lockdown in place through May 2020, the extension allows 2019 tax returns to be filed without triggering late tax filing penalties.
Note, however, that the deadline for tax payments under 2019 tax returns remains unchanged: 15 July 2020.
Income tax forms
Expats with a single source of income – i.e., their salary – will usually have their Russian income tax withheld at source and paid by their employer. In the case of other income, such as that arising from savings, dividends, or rent, you will need to file your own income tax declaration. The form to do so is NDFL-3; you can find it on the FTS website (in Russian).
Income tax rates in Russia
Incomes taxes in Russia are determined by residency status. If you live in the country for more than 183 days per year and have been granted a legal Russian residency permit, you will be considered a tax resident. Therefore, you will need to pay income taxes in Russia on all your worldwide income at the rate of 13%.
However, non-residents only pay tax on income arising from local sources. The tax rate for non-residents is 30%.
Foreigners with a temporary or a permanent residence permit are eligible to register as an individual entrepreneur (индивидуальный предприниматель) or IP (ИП), which will mean that different tax rates apply. Such IPs pay between 4-6% on their turnover as income taxes in Russia. The former rate applies when providing services to private individuals, while the higher rate is for companies.
Income tax for married couples
Russia does not have separate rules for married couples. If both husband and wife have taxable income within the Russian Federation, each must pay Russian income tax separately. In contrast to many European countries, there is no concept of joint tax returns in Russia.
Personal tax allowances and deductions in Russia
Official residents can reduce their Russian income tax bills via deductions and allowances. These are typically not available to non-residents. Therefore, tax deductions in Russia only apply to earnings subject to the 13% tax rate for residents.
The main deduction from income taxes in Russia applies to children. The exemption starts from RUB 1,400 for the first two children and goes up to RUB 3,000 for a third and each subsequent child. It does not matter where the children live when applying for this tax deduction. However, to qualify for a deduction of child tax, you must be earning a cumulative annual income of less than RUB 350,000.
Individuals may also deduct the costs of their own education in licensed institutions (within limits) and for their children’s education (up to RUB 50,000 per child).
Donations to certain non-commercial organizations (from 2012) and charities are deductible from taxable income (within the limit of 25% of all income subject to 13% tax rate).
When buying property in Russia, foreign tax residents can apply for a once-in-a-lifetime tax deduction of up to RUB 2,000,000, plus the amount of interest of up to RUB 3,000,000
Self-employed income tax allowances in Russia
Self-employed entrepreneurs in Russia are generally required to pay income taxes on the profit from their businesses, typically the amount arrived at after deducting business expenses from revenue. Such deductions and allowances are laid out in the Russian corporate tax code.
Income tax in Russia for foreigners
Expats residents in Russia can claim a foreign tax credit against their Russian tax liabilities if they are covered by a relevant Double Taxation Treaty (DTT). Russia has signed DTTs with more than 80 countries. The credit may not exceed the amount of tax payable in Russia.
In order to claim the tax credit, individuals will need to provide supporting documentation along with the tax declaration within three years after the reporting period.
PWC offers a list of countries with which Russia has DTTs.
Tax refunds in Russia
Due to Russia’s residency rules, income tax may sometimes be withheld at the wrong rate, i.e. 30% instead of 13%. In such cases, expats are advised to ring the local tax office directly to ask about refunds. Since such dealings are likely to be in Russian, it is worth seeking the advice of a local tax lawyer.
Tax fines in Russia
A failure to file Russian income tax by the deadline may attract a considerable fine. Such penalties are prescribed at 5% of the outstanding tax liability per each month of delay. The total amount late filing penalty is capped at 30% of the outstanding tax liability but cannot be less than RUB 1,000. Payment delays also attract interest equal to 1/300 of the Central Bank’s refinancing rate per day of delay.
If the amount of unpaid tax is more than RUB 900,000 over three years, you may be subject to a criminal investigation.
Income tax advice in Russia
Although income taxes in Russia appear straightforward, there are a few exceptions and deductions available to resident and non-resident taxpayers alike. The tax system is fluid, and many legal requirements may not be applicable in practice thanks to additional exceptions. There is also wide scope for interpretation.
Further, taxes may not always be withheld according to an expat’s residence status. As such, it is advisable – particularly for expats who are self-employed – to seek expert advice before determining the likely tax consequences and finalizing their returns.
Americans living in Russia can get expert help in filling in their US tax returns from Taxes For Expats.
The following resources could prove helpful for those looking for more information about income taxes in Russia: