Those who left Russia may face a double tax

Ministry of Finance and Ministry of Foreign Affairs suggested the president to introduce retaliatory measures against unfriendly countries that apply restrictions against Russian citizens and legal entities. To do this, it is planned to suspend the double taxation avoidance agreements (DTT) with the states imposing sanctions against Russia. Experts believe that the “freeze” of tax agreements will have a negative impact on the income of companies from unfriendly states and will hit hard on Russians who have gone to live abroad, but continue to receive income in Russia.

Triple whammy: Who is at risk of higher taxes

A young man works on a laptop in the canteen of the Berlin Kreuzberg factory, Berlin, Germany.  Photo © Getty Images / Sean Gallup

A young man works on a laptop in the canteen of the Berlin Kreuzberg factory, Berlin, Germany. Photo © Getty Images / Sean Gallup

Currently, DTA treaties allow companies and citizens to pay taxes in only one country, or in both, but at a reduced rate. By information Ministry of Finance, such agreements are still in force with 82 countries, including a number of unfriendly ones (for example, the USA, Japan, Canada, Great Britain, etc.). If the validity of the DTA documents is suspended, then this threatens at least double taxes for Russians living outside of Russia and foreigners who live in the Russian Federation. Foreign corporations that enjoy tax breaks while doing business in Russian jurisdiction may also be affected.

Russia’s suspension of the DTT agreements will most likely entail similar measures on the part of these states. And such steps will have consequences, explained the lawyer, member of the general council of “Business Russia” Alexander Khaminsky. – Firstly, this will affect Russians temporarily residing abroad, but have not yet lost the status of tax residents of Russia. Secondly, Russians who own business abroad will fall under double taxation. Thirdly, we can create difficulties for the 2,300 foreign companies that have remained in Russia.

How much can relocant taxes increase?

Experts believe that an increased financial burden may threaten Russian citizens who have chosen the countries of the European Union (EU) as their place of residence, since the alleged retaliatory measures of the Russian Federation are directed primarily towards these states.

Taxes in most EU countries are much higher than in Russia, and therefore most “temporary fugitives” prefer to receive a salary in a Russian company or income from renting real estate in the Russian Federation, but at the same time pay no more than 13% or 15% of taxes to the Russian treasury. If the DTA is canceled, such relocators will be required after 182 days to start paying taxes in their country of residence, and in some cases, make tax payments on income in the Russian Federation at a rate of 30% per annum, explained the head of the Western Bar Association of Moscow, Alexander Inyutin.

Indeed, despite a number of differences in the tax legislation of the eurozone countries, most of them have a multi-stage progressive taxation scale. For example, in Germany, with income up to €58,596, you will have to pay 42%, and over this amount – up to 45% (in different municipalities, the figure may be different). In Finland, for foreign citizens, the amount of tax payments will be from 35% to 40%, and in Cyprus the tax can be up to 35% of the income received.

What tax awaits in different countries?  Illustration © LIFE

What tax awaits in different countries? Illustration © LIFE

Why those who left the Russian Federation in any case will pay more

Analysts agree that if the president supports the initiative of the Ministry of Finance and the Foreign Ministry (and this is very likely), then the decision will most likely enter into force before the end of this year. In favor of the fact that the country’s leadership can take such a step, the explanations of the Ministry of Finance speak, from which it follows that the main financial department of the country has already prepared its ideas regarding amendments to the Tax Code of the Russian Federation and they concern precisely those who receive income in Russia, but temporarily relocated abroad.

According to the Ministry of Finance, citizens who have left the country and continue to work for Russian legal entities under an employment contract must themselves pay income tax (PIT) at a rate of 13% or 15% (if the annual income exceeds five million rubles). At the same time, the self-employed regime with a tax rate of 4% or 6% cannot be extended to those who left. And from those who have lost their residency and have drawn up civil law contracts (GPC) with the employer, in general, personal income tax should be taken at a rate of 30%.

Photo © TASS / Valery Sharifulin

Photo © TASS / Valery Sharifulin

As a source in the State Duma explained to Life, the text of amendments to the tax legislation of the Russian Federation is already in the works. At the same time, lawmakers do not exclude that not all employers will have the right to establish the usual Russian personal income tax rate even for their contract workers who are located abroad.

In addition, Rostrud has already spoken on the issue of relocators, which recalled that the labor legislation of Russia Not provides the possibility of concluding an agreement on remote work, if it is performed outside the territory of the Russian Federation. For this reason, the department recommended to conclude a GPC agreement with employees located abroad, the same one that, according to the new rules of the Ministry of Finance, is subject to personal income tax at a rate of 30%.

– Whoever made a choice not in favor of Russia should understand that it will no longer be possible to feed at the expense of our country. Such people will have to pay for their betrayal with at least a large part of their income, – said State Duma deputy, first deputy chairman of the Defense Committee Alexei Zhuravlev.

The parliamentarian also expressed the opinion that taxes for those who left, but continue to receive income in the Russian Federation, could rise to 40% or more. However, the increased rate does not threaten those who went abroad for a short period of time for treatment.

Do you think it’s fair to increase taxes for Russians living outside Russia?

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