The Government has approved the possibility to cut the tax residence period in 2020 down to 90 days
It was approved today at the session of the Russian Government that individuals who stay in the Russian Federation from 90 days up to and including 182 days may recognise themselves as Russian tax residents in 2020 and, consequently, pay personal income tax at the rate of 13%, rather than the rate of 30% as established for non-residents. For this benefit to apply it will be required to file an application in no set form together with a personal income tax return.
Anton Siluanov, the Minister of Finance, has described the purpose of these amendments differently. At the hearing of the Government, he noted that this measure will “enable us to attract people to the country who are ready to work, develop their business and become tax residents here”. According to finanz.ru, at his meeting with journalists the Minister pointed out that support must be provided to “certain nationals” who, during the period of coronavirus restrictions, “were unable to return to Russia for objective reasons - owing to a business trip, vacation, studies or medical treatment”.
The second explanation appears more convincing. It is hard to imagine that these amendments can be an incentive for anyone living abroad to move to Russia by the end of the year. Moreover, the move has to be completed within the next two and a half months, otherwise there will not be enough days left to reside here and meet the 90-day limit.
The amendments are rather required for those Russians who, owing to the restrictions, will have spent more than half a year abroad this year and, by virtue of the current rules, will lose Russian tax residency and have to pay tax at the rate of 30 percent. Evidently, these are not people who have been sent on business trips, or students, or those who went on vacation. These are, most likely, people who are used to spending a few months abroad, but this time have exceeded the 183-day threshold.
But then again, unlike residents, non-residents pay tax only on income from sources in Russia, but not on foreign income. It is possible, therefore, that it will be more worthwhile to pay tax on such income abroad (and remain a non-resident) than to acknowledge oneself as a Russian resident. The Government has foreseen this as well: for individuals who have spent from 90 to 182 days in Russia in 2020 residency will be voluntary.
We remind you that the Organisation for Economic Cooperation and Development has recommended that states reconsider tax residency rules in connection with the spread of the coronavirus infection.