Personal income tax in pursuit – Kommersant

Freelancers working for Russian companies from abroad with “using the Russian segment of the Internet” after six months of living abroad may be subject to personal income tax at a rate of 30%. Now in such cases there is no tax in Russia at all. This is the meaning of the amendments to the Tax Code, introduced on Monday, April 24, to the State Duma by the government. Companies that have entered into a civil law contract with an employee will have to withhold tax for the budget. Experts note that if innovations are adopted, companies will have to closely monitor the tax status of their individual contractors – in case of improper withholding of personal income tax, they may face fines. In order to avoid a new workload, the experts themselves offer retraining as self-employed – the amendments do not apply to them yet.

The government on Monday introduced an extensive bill to the State Duma, which provides for numerous targeted amendments to the Tax Code in order to, as they say, “improve tax administration.”

One of the most significant amendments for citizens is the changes in Art. 208 of the Tax Code, which actually introduce personal income tax at a rate of 30% for some remote workers. It follows from the text of the draft law and the ensuing meager explanations from the Ministry of Finance that we are actually talking only about freelancers—tax non-residents (that is, citizens living abroad for more than six months in a row) working for Russian companies not as full-time employees, but under civil law contracts. .

Now payments from Russian companies to non-residents for performing remote work in another state are considered income received from sources outside of Russia, and it is not subject to personal income tax (“shaking off” tax from such employees is already becoming a problem of the host country of its new resident). Accordingly, the Russian company as a tax agent has no obligation to withhold tax. If the remote worker is still a resident, then he himself declares his income in the form of 3-personal income tax and pays income tax to the budget on his own.

From 2024, the amendments propose to attribute to income from a source in Russia the payment received by individuals for the performance of work or the provision of services, as well as the rights granted to use the results of intellectual activity or means of individualization, if the activity is carried out using the Russian segment of the Internet “or complexes located in the Russian Federation software and hardware and information systems”.

Such attribution of payments for remote work performed using the “Russian” part of the Internet to income from sources in the Russian Federation makes them subject to personal income tax.

Then everything is as usual. Those who remain tax residents of the Russian Federation pay 13% personal income tax (or 15% on the part of income over 5 million rubles per year). Those who have become non-residents (staying abroad for more than 183 days a year) will have to pay an increased personal income tax rate of 30% to the Russian budget. At the same time, which is very important, the customer organization must withhold the tax, that is, it will act as a tax agent.

This clearly does not follow from the text of the amendments themselves, but on Monday the Ministry of Finance explained that the amendments do not affect employees who work under employment contracts – for them, the current tax conditions do not change in any way. Having added a somewhat strange phrase that the bill is “still being finalized at the government site” (we recall that the document was officially submitted to the State Duma, improvements, as with any other bill, are possible during its second reading), the department refrained from more detailed comments .

From what the Ministry of Finance has said, it follows that the innovations will affect only employees who provide services or perform work for companies under civil law contracts (GPC), that is, about freelancers.

At the same time, the amendments do not talk about the self-employed who do not pay personal income tax, or about individual entrepreneurs who pay this tax on their own.

Recall that the story of the tax for the “left” is not new. Back in July last year, the Ministry of Finance proposed to include in the number of income from a source in Russia the remuneration paid by employers to remote workers outside the country. But then it was about employment contracts concluded with citizens (see “Kommersant” dated July 27, 2022). If they lose the status of a tax resident of the Russian Federation, their income would have to be subject to a 30% personal income tax. It was explained that the initiative was connected with the desire to “eliminate the practice of non-payment of personal income tax” by those remote workers who do not receive tax resident status in any country (in particular, due to frequent relocations) or receive it in a low-tax jurisdiction.

It should be noted that if the new amendments are really only about freelancers, then the innovations will affect a much smaller number of citizens – according to Rosstat, at the end of 2022, about 1 million people worked under GPC agreements. There is, however, a possibility that official statistics do not fully take into account such workers.

Sergey Kalinin, Head of Tax Practice at EPAM Law Office, explains that now a 30% tax is paid by a non-resident only if the work or service is physically performed on the territory of the Russian Federation; now this rule is supplemented by a situation where a non-resident receives payment for work performed in the Russian segment of the Internet, regardless of where it was physically performed.

Thus, Forward Legal lawyer Roman Gusak adds, instead of the existing approach “taxation in the country of actual performance of work”, the draft law proposes the approach “taxation in the country of source of payment”.

MEF Legal Partner Alexander Erasov recalls that if freelancers work under an agreement with an organization, are not self-employed or individual entrepreneurs, and they have an obligation to pay Russian personal income tax, then the Russian company acts as a tax agent. According to him, “in practice, there are now two approaches: some companies do not closely monitor the country in which their employees are located and pay 13 percent or 15 percent personal income tax the old fashioned way,” even when there is no need for this due to the loss resident status. Other employers track residency and stop paying personal income tax if, in accordance with the law, such an obligation ceases to arise.

Now, says Kept partner Donat Podniek, customers will be required to establish the tax status of an individual contractor and, depending on this, apply the appropriate personal income tax rate. Otherwise, they may be subject to fines, penalties and, under certain circumstances, the amount of unwithheld personal income tax. The tax authorities themselves, Alexander Erasov adds, can exchange data with the border services, but there have not yet been mass claims or campaigns to significantly increase control over relocated employees.

However, Evgeniy Sivushkov, the director of the tax practice at Technology of Trust, notes that individual contractors are still not prohibited from registering as self-employed or individual entrepreneurs under the simplified system and paying taxes at significantly lower rates than personal income tax. According to Superjob President Alexei Zakharov, the bill “will not bring any benefit” — “if for some reason it becomes unprofitable to work for Russia, then highly qualified personnel will find someone to work for,” and the companies themselves may, due to the amendments, hire fewer freelance specialists working abroad, or to hire the most valuable employees.

Evgenia Kryuchkova, Vadim Visloguzov, Anastasia Manuylova