Personal income tax without borders – Kommersant

The Ministry of Finance finalized amendments on new rules for paying personal income tax by citizens who have been working from abroad for Russian companies for more than six months. According to the updated version, income received both under employment contracts and under civil law contracts will be taxed at the standard rate of 13% from 2024. Thus, the same tax will be levied on both full-time employees and freelancers, both residents and non-residents. For the latter, this may mean the emergence of double taxation – in the Russian Federation and in the new host country. It will be possible to try to solve the problem with the help of agreements on the avoidance of double taxation, the prospects for the practical application of which in the current conditions are not clear.

The draft of point changes in the Tax Code, which provides, among other things, for new rules for taxing citizens working for Russian companies from abroad, has been finalized for resubmission to the State Duma, informed Ministry of Finance on Thursday Recallthe bill was submitted by the government to the lower house on April 24, but the very next day it was withdrawn for “technical clarifications.”

Changes in terms of personal income tax for those who left, however, turned out to be very significant. In the April version, it was proposed to attribute to income from a source in Russia the wages received from a Russian customer by freelancers working under civil law contracts. So far, such personal income tax in the event of an employee losing residency, that is, after six months of living abroad, is not taxed at all – and according to the previous edition, such individuals could immediately fall under a 30% tax.

In the new version, a tax for non-residents also arises – but at standard rates of 13% or 15% (on income exceeding 5 million rubles per year).

At the same time, the bill now also includes remunerations received when a remote worker performs a labor function under an agreement with an employer that is a Russian organization or a separate subdivision of a foreign organization registered in the Russian Federation as income from a source in Russia – in other words, the tax will be levied both on full-time employees , and from freelancers, both from residents and non-residents.

Deputy Finance Minister Alexei Sazanov explains this unification by the fact that now Russian organizations, as tax agents, have to determine the tax rate on an employee’s income depending on the specific situation – and “when an employee works remotely, of course, it is difficult for companies to check whether he is a Russian tax resident or No”. According to him, the innovation should significantly simplify administration for tax agents.

Changes may make life easier for companies, but non-residents themselves are threatened with double taxation – after all, the tax authorities of a foreign state, as a rule, will also claim to tax the income of their new resident.

As Kept partner Donat Podniek notes, for those who work in a country with which the Russian Federation has an agreement on the avoidance of double taxation (about 80 states), and pay taxes there on the salary received from a Russian employer, there is an opportunity to offset foreign tax in the Russian Federation . “True, for some time, until the personal income tax withheld in the Russian Federation is returned, the employee will actually pay taxes both in the Russian Federation and abroad,” the expert says.

As Aleksey Sazanov clarified, in case of suspension of agreements (such a possibility is now being discussed in relation to unfriendly countries – see “Kommersant” dated March 15), the rules that allow offsetting the paid tax will continue to apply. The question, we note, is whether, under the current conditions, this will be possible in practice with the current level of information exchange and cooperation with unfriendly jurisdictions. Those who left for countries with which there are no such agreements or they have been denounced (for example, with the Netherlands) will find themselves in the most unfavorable situation – then income, warns Lyudmila, head of the Structural and Tax Consulting practice at the law firm Lemchik, Krupsky and Partners Kruglov, will be taxed both in Russia and in the host country without the possibility of offset.

Donat Podniek notes that for those who have a properly registered job abroad and the Russian employer does not withhold personal income tax, the changes will worsen the position of workers.

But there are cases when there are no additional agreements on remote work abroad and the employer “for safety net” withholds personal income tax at a rate of 30% – in this case, the burden will decrease. Lyudmila Kruglova notes that due to the lack of the ability of the tax authorities to automatically check the residence status of citizens, apparently, the authorities came to the conclusion “that the tightening of the rules will not allow collecting 30% of personal income tax from the departed citizens: voluntarily, in large numbers, citizens do not notify the loss of resident status will be, and it is impossible to check this status for millions of workers manually.”

According to MEF Legal Associate Partner Anna Zelenskaya, the changes are logical in connection with the digital transformation of the labor market and the prevalence of remote work. “The notion that employers should keep track of the physical location of an employee is probably a little outdated,” she says.

Evgenia Kryuchkova, Vadim Visloguzov