Moving back to Russia after living abroad brings with it a host of legal and financial considerations, one of the most important being how your foreign income is treated. If you’ve been earning income in another country, whether through employment, investments, or self-employment, you’ll need to understand how Russia’s tax laws apply to foreign income and how to properly report and manage it.
This guide will explain what happens to your foreign income when you move back to Russia, including tax obligations, exemptions, reporting requirements, and other factors to consider in order to ensure compliance with Russian tax laws.
1. Russian Tax Residency and Foreign Income
When you move back to Russia, your tax status will largely depend on your residency status. In Russia, tax residency is defined by how much time you spend in the country during a calendar year.
a) Determining Russian Tax Residency
You are considered a tax resident of Russia if you spend 183 days or more in Russia during a calendar year. If you qualify as a tax resident, you are subject to taxation on your worldwide income, including income earned abroad. If you do not meet this criterion, you are classified as a non-resident and only subject to tax on income earned within Russia.
- Tax Resident: You will be taxed on your foreign income in Russia, which means you need to declare all sources of income, both from inside Russia and from abroad.
- Non-Resident: Non-residents are taxed only on Russian-source income and are not obligated to report foreign income.
b) Tax Implications for Returning Residents
If you move back to Russia and immediately qualify as a tax resident (i.e., you spend more than 183 days in the country), all income you earn—whether it’s from foreign investments, salary, or other sources—will be taxable in Russia.
2. Taxation of Foreign Income for Russian Residents
If you are a tax resident of Russia, you are required to report all your worldwide income to the Russian Federal Tax Service (FTS). This includes income earned from abroad, such as:
- Salary or wages from foreign employment
- Dividends and interest from foreign investments
- Rental income from property abroad
- Self-employment income earned overseas
a) Income Tax Rates for Russian Residents
Russian tax residents are subject to the personal income tax (PIT) on their worldwide income. The standard rate is:
- 13% for most types of income (including salary and business income)
- 15% for income exceeding 5 million rubles (on the portion exceeding this threshold, applicable to high earners)
However, there are some exceptions and special cases:
- Dividend Income: Russian tax residents are taxed at 13% on dividends from foreign companies, although treaties with certain countries may reduce the withholding tax rate.
- Foreign Self-Employment Income: If you are a freelancer or business owner with income from abroad, the same 13% tax rate applies. You may also need to register as a self-employed individual or small business owner (if applicable).
b) Double Taxation Treaties (DTTs)
Russia has agreements with several countries to avoid double taxation, meaning that if you’re paying taxes in the country where you earned the income, you may be able to claim a tax credit or exemption in Russia. These agreements help reduce the possibility of being taxed twice on the same income.
Key Points to Consider:
- Foreign Taxes Paid: You may be eligible for tax credits or exemptions based on the taxes you’ve already paid in your country of residence.
- Countries with Tax Treaties: Russia has signed double taxation treaties with many countries, including the United States, Germany, and France. You should consult the relevant treaty to determine how much foreign tax credit you can claim.
3. Reporting Foreign Income to Russian Authorities
As a Russian tax resident, you must report all of your foreign income to the Russian tax authorities. This is done through an annual tax return, which must be filed by April 30th of the year following the income year (e.g., your 2023 income must be reported by April 30, 2024).
a) Required Documentation
To report foreign income, you will need to provide supporting documents, such as:
- Income statements (for wages, dividends, or other income sources)
- Tax payment receipts from foreign countries (if applicable)
- Bank statements showing transfers of foreign income to Russia
- Investment records if you have foreign investments
b) Filing Your Tax Return
You will file your income tax return through the Russian Federal Tax Service. This can be done electronically through the Gosuslugi portal or by visiting your local tax office. For individuals with complex foreign income sources, it may be helpful to hire a tax professional to ensure proper reporting and compliance.
4. Exemptions and Special Tax Provisions for Foreign Income
Russia offers some exemptions and special tax provisions that may reduce the amount of foreign income tax you need to pay:
a) Income from Foreign Employers
In some cases, if you are working for a foreign employer and living abroad, your income may not be subject to Russian tax, depending on your tax residency status and whether Russia has a tax treaty with the country you are working in.
- Foreign Work: If you are employed by a foreign company and working outside of Russia, the income may not be taxable in Russia, but only if you meet certain conditions, such as maintaining residence outside of Russia for the majority of the year.
b) Tax Exemption on Foreign Income from Russian Citizens Working Abroad
If you are a Russian citizen working in another country, Russia may exempt some foreign income, particularly if it has been taxed in the foreign jurisdiction. However, this exemption may require proof of tax residency in the foreign country and payment of local taxes.
c) Tax Treaties and Reduced Rates
Russia’s tax treaties with foreign countries may allow for reduced rates or exemptions on certain types of foreign income, such as dividends or interest. These treaties prevent double taxation and can reduce your overall tax liability.
5. Foreign Assets and Reporting Requirements
In addition to income tax, Russian tax residents must also report foreign assets if they meet certain thresholds. This is done via a special form, the Form 3-NDFL, which requires you to disclose foreign accounts, investments, and other assets.
- Foreign Bank Accounts: You are required to report foreign bank accounts, investments, and property holdings if they exceed a certain value.
- Foreign Real Estate: If you own real estate outside of Russia, this must also be reported for tax purposes.
Failure to report foreign assets can result in penalties or additional taxes, so it’s important to comply with the reporting requirements.
6. Special Tax Regimes for Entrepreneurs and Freelancers
If you are returning to Russia and work as a freelancer, business owner, or entrepreneur, there are special tax regimes you may qualify for, which could simplify the tax process.
- Simplified Tax System: Russian self-employed individuals and small businesses may qualify for the simplified tax system (STS), which offers lower tax rates (usually 6% or 15% depending on income type) and reduced reporting requirements.
- Freelancer Taxation: If you are a freelancer or independent contractor, you may need to register as a self-employed person and pay taxes accordingly. In some cases, you may qualify for a special tax treatment, which can lower the overall tax burden.
Conclusion
When moving back to Russia after living abroad, it’s essential to understand how your foreign income will be taxed and the necessary steps to ensure compliance with Russian tax laws. As a tax resident, your worldwide income is subject to taxation in Russia, but tax treaties, exemptions, and reporting requirements can help reduce your tax liability. Proper reporting, including income from foreign employers, investments, and assets, will ensure that you avoid penalties and remain in good standing with Russian tax authorities.
To navigate the complexities of foreign income taxation in Russia, consider consulting a tax professional who can help you make the most of available tax credits and exemptions, as well as assist you in filing your tax return accurately.
