For Russians returning to their homeland after spending an extended period abroad, understanding the country’s taxation rules is essential to avoid any surprises when it comes to taxes and financial responsibilities. Russia’s tax system applies different rules for individuals who are returning to the country, depending on their residency status, previous tax obligations, and the source of their income.
In this article, we will explore the key taxation rules that apply to Russians returning from abroad, including the definition of tax residency, the process of declaring income, and any potential tax advantages or obligations that may arise.
1. What Is Tax Residency in Russia?
The first step to understanding taxation rules for Russians returning from abroad is to clarify what constitutes tax residency. According to Russian tax law, an individual is considered a tax resident if they spend at least 183 days in Russia within a calendar year.
1.1 Tax Resident vs. Non-Resident
- Tax Resident: A tax resident of Russia is subject to Russian income tax on their worldwide income, which means they must report and pay taxes on any income earned both inside and outside of Russia.
- Non-Resident: A non-resident is someone who spends fewer than 183 days in Russia in a calendar year. Non-residents are generally only taxed on their Russian-source income.
1.2 Residency for Returning Citizens
For Russians returning to the country after living abroad, their tax residency status will depend on how long they have spent in Russia during the calendar year. If you return to Russia and live there for more than 183 days in the year, you will be considered a tax resident and subject to Russian income tax on worldwide income.
2. Declaring Income Upon Return
When returning to Russia, individuals must ensure that all income they earned abroad is properly declared to Russian tax authorities. The tax declaration process will vary depending on your status as a resident or non-resident and the type of income earned.
2.1 Income Declaration Process for Tax Residents
As a tax resident, you are required to declare your worldwide income. This includes:
- Salary or wages from abroad
- Business income from foreign operations
- Investment income, such as dividends, interest, or capital gains
- Rental income from properties abroad
The declaration process involves filing a personal income tax return (form 3-NDFL) with the Russian Federal Tax Service. In the declaration, you must disclose all income, both domestic and foreign, and report any taxes you have already paid to other countries.
- Tax Credits: If you paid taxes abroad on foreign income, you may be eligible for a tax credit in Russia to avoid double taxation. Russia has double taxation treaties with many countries, which help ensure you are not taxed twice on the same income.
2.2 Income Declaration Process for Non-Residents
If you return to Russia but are still considered a non-resident for tax purposes (i.e., you don’t meet the 183-day requirement), you will only need to declare and pay taxes on income earned within Russia. Non-residents are taxed at different rates, typically higher, than residents, so it is important to ensure that you meet the residency requirements to avoid non-resident tax rates.
For non-residents, the tax filing requirements are usually simpler, as they only need to report their Russian-source income and pay taxes accordingly.
3. Tax Rates for Russians Returning from Abroad
The taxation rates for individuals in Russia depend on their tax residency status and the type of income they receive. Below is an overview of the tax rates that apply to tax residents and non-residents.
3.1 Income Tax for Tax Residents
Tax residents are taxed on their worldwide income at the following rates:
- Employment income: Generally taxed at a flat 13% rate for residents. However, for high-income individuals (earning over 5 million rubles per year), the tax rate is 15% on the income exceeding this threshold.
- Business income: If you are self-employed or running a business, the tax rate is also 13% for tax residents on profits earned within Russia.
- Investment income:
- Dividends: Taxed at 13% for residents.
- Interest: Taxed at 13% for residents.
- Capital gains: If the gains are from the sale of securities or real estate, they are taxed at 13% for residents.
- Rental income: Income from renting out property is also subject to 13% tax for residents.
3.2 Income Tax for Non-Residents
For non-residents, the tax rate is typically higher. Non-residents are generally taxed at:
- Employment income: 30% on wages earned in Russia.
- Business income: 30% on business profits.
- Investment income: 30% on dividends, interest, and capital gains.
While non-residents are only taxed on Russian-source income, the higher tax rate makes it advantageous for individuals to establish tax residency as soon as possible after returning to Russia.
4. Taxation of Foreign Assets and Income
For Russians returning from abroad who have foreign assets or income, it’s important to understand how these assets will be taxed once you are considered a tax resident in Russia.
4.1 Declaration of Foreign Assets
Russian citizens are required to declare foreign assets when they become tax residents. This includes:
- Bank accounts: Any foreign bank accounts or financial holdings must be reported to the Russian tax authorities.
- Real estate: Properties owned outside of Russia need to be declared.
- Investments: Shares, bonds, and other investments held in foreign countries must be disclosed.
Failure to declare foreign assets can result in fines or penalties. If you hold foreign assets, it is essential to comply with the declaration requirements and ensure that you are fully transparent with the tax authorities.
4.2 Taxation of Foreign Income
Once you are considered a tax resident in Russia, you are obligated to report all foreign income, including salary, dividends, rental income, and any other earnings from outside of Russia. While you will be taxed at the standard resident rates (usually 13%), Russia allows you to apply for tax credits or exemptions if you have already paid taxes in the country where the income was earned. This helps prevent double taxation and can be beneficial for individuals with significant foreign income.
5. Double Taxation Agreements
Russia has double taxation treaties with many countries around the world, which help ensure that individuals are not taxed twice on the same income. These agreements allow for tax credits or exemptions to avoid double taxation, and they specify the country that has the right to tax specific types of income.
For example, if you were living and working in a country like the United States or Germany, and you paid taxes on your income there, you could potentially receive a tax credit in Russia to offset the taxes you already paid abroad.
It’s essential to check if a double taxation agreement exists between Russia and the country where your income was generated. If one exists, you will likely need to provide proof of taxes paid abroad to claim the credit.
6. Final Considerations and Tips
- Keep Records: It’s crucial to maintain detailed records of all income earned, taxes paid, and relevant documentation regarding foreign assets and income. These records will be essential when filing your tax declaration.
- Consult with a Tax Expert: Tax rules can be complex, especially for those with significant foreign income or assets. Working with a tax professional can help you navigate the rules and ensure compliance.
- Timely Registration: Ensure that you register as a tax resident in Russia if you meet the 183-day requirement. This will ensure that you are taxed at the resident rates and can avoid higher non-resident taxes.
Summary
Russians returning from abroad need to be aware of the tax residency rules and how their income, assets, and foreign investments will be taxed upon their return. Becoming a tax resident of Russia grants you a number of benefits, including lower tax rates on global income, but it also comes with the responsibility of declaring all foreign income and assets.
Understanding Russia’s tax laws, keeping track of your financial obligations, and consulting with a tax expert can help ensure that you comply with the country’s tax regulations and avoid any issues when it comes to paying taxes. By staying informed and proactive, you can ensure a smooth transition when returning to Russia.
