Personal Income Tax (PIT): What You Need to Know about Calculation and Payment of Personal Income Tax in Russia
Publication date/update: 07.04.2023
All individuals earning income in Russia are required to pay Personal Income Tax (PIT) at a rate of 13% (or 30% in certain cases). This applies to employment under an employment contract, civil law contracts, as well as situations where income is derived from winnings, sale of a car, real estate, or other assets.
PIT is considered one of the most widespread taxes that contribute to local budgets. However, employers may not always be aware of all the intricacies of calculating and paying PIT. In this article, we will shed more light on this matter.
PIT is considered one of the most widespread taxes that contribute to local budgets. However, employers may not always be aware of all the intricacies of calculating and paying PIT. In this article, we will shed more light on this matter.
Calculation of Personal Income Tax (PIT) for non-resident taxpayers in Russia
Article 209 of the Tax Code of the Russian Federation recognizes income as the object of taxation for Personal Income Tax (PIT) when it is obtained from the following sources:
1
From sources within Russia and/or from sources outside of Russia - for tax residents of the Russian Federation.
2
From sources within Russia - for non-residents of the Russian Federation.
It is important to understand that an individual is considered a non-resident for tax purposes if they are outside of Russia for at least 183 calendar days during 12 consecutive months. The taxpayer's status is not dependent on their citizenship.
The period of stay outside of Russia is calculated up to the date of income payment by summing up all calendar days when the individual was present in Russia during 12 consecutive months. For example, if a person left the country on September 1, 2023, the period confirming residency for income payment purposes would be from October 1, 2022, to September 30, 2023.
The following are included in the calculation of the time spent in Russia:
The period of stay outside of Russia is calculated up to the date of income payment by summing up all calendar days when the individual was present in Russia during 12 consecutive months. For example, if a person left the country on September 1, 2023, the period confirming residency for income payment purposes would be from October 1, 2022, to September 30, 2023.
The following are included in the calculation of the time spent in Russia:
1
The days of arrival in Russia and the days of departure from Russia by the individual.
2
The time when a person was abroad for short-term medical treatment or education. Short-term refers to treatment (education) abroad for less than six months.
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Leave a request It is important to understand that the tax residency status in Russia is confirmed through documentary evidence in accordance with the Tax Code of the Russian Federation. One such document is the timekeeping record from the employer. If an employee lives abroad, the confirmation of residency status for the purposes of calculating personal income tax (PIT) is typically done using the citizen's foreign passport with border crossing stamps.
In addition to the foreign passport, the residency status in Russia can be confirmed by the following documents:
Leave a request It is important to understand that the tax residency status in Russia is confirmed through documentary evidence in accordance with the Tax Code of the Russian Federation. One such document is the timekeeping record from the employer. If an employee lives abroad, the confirmation of residency status for the purposes of calculating personal income tax (PIT) is typically done using the citizen's foreign passport with border crossing stamps.
In addition to the foreign passport, the residency status in Russia can be confirmed by the following documents:
1
A migration card with entry and exit records from Russia.
2
Certificates from the place of work.
3
Orders for business trips, travel documents.
4
Advance reports and related documents.
5
Certificate obtained from the place of residence in Russia.
6
Agreement with medical (educational) institutions.
7
Certificate of undergoing treatment (education) indicating the duration of such treatment (education).
Additionally, documents confirming registration at the place of residence in Russia can be provided. However, using registration documents or residence permits in Russia as the sole proof of tax residency status is not sufficient. This is because they only confirm the right to stay in Russia but do not determine tax residency status.
The income tax rate applied to non-residents
It is important to understand that according to the Russian Labor Code, the conclusion of an employment contract for remote work with a person working outside of Russia is not provided. Therefore, if an employee is working remotely outside of Russia, it may be considered a violation of labor legislation.
According to the Russian Tax Code, income tax (NDFL) is imposed on income earned in Russia regardless of the country where the employee is physically located. According to Article 224, Paragraph 3 of the Tax Code, income earned by non-resident directors from sources in Russia is subject to a 30% income tax rate. In this case, the company that makes the salary payments acts as the tax agent for NDFL.
It is important to know that income earned by employees for services rendered outside of Russia is considered income from sources outside of Russia. Therefore, a remote worker, depending on their tax status, either pays NDFL themselves or pays taxes in the country where they are a tax resident.
It is also important to consider the following:
According to the Russian Tax Code, income tax (NDFL) is imposed on income earned in Russia regardless of the country where the employee is physically located. According to Article 224, Paragraph 3 of the Tax Code, income earned by non-resident directors from sources in Russia is subject to a 30% income tax rate. In this case, the company that makes the salary payments acts as the tax agent for NDFL.
It is important to know that income earned by employees for services rendered outside of Russia is considered income from sources outside of Russia. Therefore, a remote worker, depending on their tax status, either pays NDFL themselves or pays taxes in the country where they are a tax resident.
It is also important to consider the following:
1
If an individual receiving income is recognized as a tax resident of Russia, they must calculate and declare their income earned outside of Russia in Russia.
2
If an individual is a non-resident of Russia, they are not required to pay NDFL in Russia on income received from sources outside of Russia, as such income is not subject to NDFL taxation in Russia.
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In this case, the taxation of the employee's income will be governed by the legislation of the country where they are a tax resident.
To avoid paying NDFL in Russia while working from abroad, the following steps should be taken:
To avoid paying NDFL in Russia while working from abroad, the following steps should be taken:
1
Change the employee's position from managerial to non-managerial.
2
Specify in the employment contract that the place of performance of the employment function is another country.
3
The payment should represent actual wages, not the average earnings maintained during business trips.
In this case, the taxation of the employee's income will be governed by the legislation of the country where they are a tax resident.
It is important to know that in the absence of tax residency in Russia, no NDFL is levied on income from the specified sources in the country. In this case, the taxation of the employee's income will be governed by the legislation of the country where they are a tax resident. The company in such a situation does not act as the tax agent.
To avoid paying NDFL in Russia on the wages of a non-managerial employee who is a tax non-resident, it is necessary to understand the following:
It is important to know that in the absence of tax residency in Russia, no NDFL is levied on income from the specified sources in the country. In this case, the taxation of the employee's income will be governed by the legislation of the country where they are a tax resident. The company in such a situation does not act as the tax agent.
To avoid paying NDFL in Russia on the wages of a non-managerial employee who is a tax non-resident, it is necessary to understand the following:
1
According to the employment contract, the place of performance of the employment function is not Russia (according to Article 57 of the Russian Labor Code and Article 208 of the Russian Tax Code).
2
The payment represents actual wages, not the average earnings maintained during business trips.
If you have any questions related to the calculation and payment of NDFL for directors and employees performing their duties from abroad, it is necessary to seek competent legal assistance. Experienced lawyers and auditors from DVP Audit will answer all your questions and help you navigate the intricacies of the legislation in practice.
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