When an increased personal income tax does not apply to Russians who have left
If a person stays 183 days outside of Russia, he will lose the status of a tax resident of the country. In addition, the payroll tax rate may increase for him from 13-15% to 30%.
According to the current provisions of the Tax Code, if the employment contract stipulates that the employee’s place of work is the Russian Federation, then if he loses the status of a tax resident, the personal income tax increases to 30%. Resident employees pay 13-15% salary tax.
To date, the tax on the employee’s income is calculated and withheld by the employer as a tax agent. It determines the employee’s tax residency for the previous 12-month period when the payment is made, and not for the current calendar year. Individuals who have been in the country for at least 183 calendar days for the next 12 consecutive months are recognized as tax residents of Russia.
Will it be possible to leave the country and work remotely for a Russian employer and at the same time avoid an increase in the tax rate? Yes, it is possible. The Ministry of Finance pointed to this in its explanations. According to the current provisions of the Tax Code, income can be taxed at a rate of 0% if the employment contract with a Russian company states that the work is carried out outside the country, and the employee is a tax non-resident of the Russian Federation (that is, he spends more than 183 days a year abroad). Thus, when leaving abroad, it is necessary to sign an additional agreement with the employer that the work will be carried out outside of Russia.
Such a situation may be beneficial for an organization that has secured an employee’s place of work outside the country by signing an agreement. This reduces the risks of possible fines and errors. If the company incorrectly determines the tax status of an employee and withholds tax at a lower rate, then it will be responsible. Organizations will be charged unpaid tax and a fine of 20% of this amount on top. It is possible that because of this, in 2022, employers often began to completely cancel the removal or introduce a hybrid mode with mandatory office visits several times a week.
The way to avoid raising personal income tax with the help of an additional agreement on foreign removal is still working, but may soon disappear. At the end of June 2022, the Ministry of Finance prepared a draft law on the introduction of a 30% tax on the income of employees who left, who continued to work in Russian organizations, but at the same time lost the status of Russian tax residents. When the amendments to the Tax Code proposed by the Ministry of Finance come into force, the tax will be paid at a rate of 30% by all employees of Russian companies living abroad — regardless of how the place of work is defined in their employment contract.
What about the ban on remote work for a number of industries
In December 2022, plans were announced to ban remote control for employees of a number of industries who left the country and lost the status of tax residents of Russia. Russian employers have begun to look for alternative ways of cooperation that will enable employees to live in other countries.
To date, these plans exist only as draft laws. Therefore, even if these amendments are adopted at the beginning of 2023, they will only take effect from the new tax period, that is, from January 1, 2024.