Expat Newsletter – Compliance Alert –
If you are an expat living in Russia it is likely that you have either a a) highly qualified specialist working visa (HQS visa), b) a long-term work visa, or a c) residency permit. Many expats claim that the residency permit is the “gold standard” for those who want to live in Russia. However, at least two negative points must be underscored about the case for residency permits, namely: 1) the employer needs to pay social security on residents’ salaries, which can be as high as 30% (while only 0% for HQS employers); and 2) the resident needs to indicate to the Russian tax authorities the existence of all foreign bank accounts since the residency permit holder is considered as a Russian citizen for tax purposes. HQS visa holders do not have this requirement. All foreigners living more than 180 days in Russia also have to report all foreign income and possibly on shares in non-Russian companies. This applies to HQS visa holders as well.
Bank Account Notification – No Place to Hide
Last year, Russia ratified a new international treaty on the automatic exchange of financial account information (established by the OECD) which will attempt to give the Russian government information on any bank account held anywhere by any Russian citizen or any holder of a Russian residency permit. This is a major technical undertaking. Many countries have become signatories and literally billions of people around the world will be affected. It is not clear when the system will be up and running. Timelines range from one to two years. The bank account sharing system is likely to give the Russian government both past and current account information. According to this treaty, it will be possible for the Russian government to electronically research a particular individual and find out all kinds of information about the individual. In the first instance it will be simply information about the existence of bank accounts. Later it will likely be information about account balance and income.
Two Strikes and You are Out
Russia has a very strict rule for foreigners (even residency holders): if you receive two administrative fines, you may be denied a new visa to Russia. This applies to all those who have administrative fines, even if they are paid on time. It is the mere fact that the administrative fine was issued. Administrative fines can be for infractions such as jay-walking, parking tickets, speeding tickets, failure to file tax returns when required (see below), failure to be properly registered in accordance with visa rules, and failure to indicate the existence of foreign bank accounts (residency permit holders). Administrative fines are also applied for infractions incurred as the general director of a Russian company such as for a company’s labor violations, a company’s late filing of tax returns, etc. Perhaps foreigners should think twice before taking on the role of general director.
Tax Returns Due in April
Foreigners often brag about living in Russia since they don’t have to file taxes in Russia since taxes are withheld at the source. However, if a Russian tax resident has any other income in Russia or elsewhere (such as rental income, dividends, bank account interest, capital gains, etc.), they must file a tax return in Russia. Even in some cases if taxes are not due, a tax return must be filed nevertheless. Russia has its own tax systems for dividend income, interest income, and other taxable incomes. Russian tax rates would never be the same as in another country (except by coincidence) and may be higher or lower. While most countries have double tax treaties with Russia (so a tax credit would be permitted), appropriate tax returns need to be filed in Russia for this income (even in some cases if no tax is due). One potential risk for the future is that once the OECD treaty on the automatic exchange of financial account information (mentioned above) is in full force, the Russian government could have the possibility to see money flows in foreigners’ bank accounts and could be in a position to question those cash flows. Thus, unreported foreign income could be detected. This could be very bad news for many if this is done retroactively. Even if it takes a year or two to get the Russian system up and running, it could be that information for past years will eventually become visible to the authorities. If you have any questions about the above please write to us for a consultation at firstname.lastname@example.org or call our Russian toll free number 8800 555 3971 (from Moscow +7495 988 2171) or toll free from the United States: 1 800 318 9951.