Expatriate Executive: Russia

Summary of local taxation situation

A foreign national working in Russia or based there will be taxed in Russia either as a resident or as a non-resident.

Residence applies to individuals who spend more than 183 days in the country.

In order to lose tax residence it is simply necessary to stop fulfilling this criterion in a given tax year. Short trips are made on the basis of single- or multiple-entry visas; for a longer stay a temporary residence permit is required, and is issued for three years. After one year, 5-year permanent residence permit can be issued.

Resident individuals are taxed on their worldwide income at a flat rate of 13%, with a personal allowance of 400 roubles per month subject to an annual income ceiling of 40,000 roubles; non-resident individuals are taxed only on their local-source income, at a flat rate of 30%, although this may be waived under double tax treaties. For employees of Russian companies, tax is withheld at source by the employer; employees of foreign companies normally make their own tax returns. Domestic dividends are taxed at 6%, witheld at source.

Deductions are permitted for some types of medical and educational expenses; and a one-time deduction of 2m roubles is available for expenses incurred in the purchase or construction of residential property.

Employed individuals do not pay social security taxes; the employer pays a of 26% of salary, known as the unified social tax, up to a ceiling of 415,000 roubles (2010). This is due to increase to 32% from 2011.

There is no Alternative Minimum Tax, wealth tax or inheritance tax in Russia.

Capital gains are taxed along with regular income, but many types of asset including real estate are exempt from capital gains tax after three years of ownership.

There is an anual tax on the cadastral value of real estate at 1.5%.

NB: The Russian tax rules are considerably more complicated than the above simplified summary, and professional advice on the situation of any particular individual is a necessity.

Offshore Investment Opportunities

Although some revenue protection measures apply to countries having "preferential" tax regimes, these apply mostly to larger companies, and general anti-avoidance legislation has not progressed far in Russia for individuals; offshore trusts or other corporate forms are therefore generally speaking quite effective at sheltering many types of asset.

It follows that before taking on Russian residence, there is a case for placing income- or growth-generating assets into trust.

Needless to say, it is essential to take professional advice.

Once Russian residence has been terminated, and if non-residence is expected to be permanent, then an ex-Russian resident is free to invest offshore in order to obtain the best possible returns.

www.lowtax.net contains extensive information on the investment, tax and legal regimes in 50 of the main offshore jurisdictions. Further information is available in our Investment Information Providers Section, and the four main types of offshore investment are described in the Guide to Offshore Investment on this site.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.