This article, written and maintained by the professionals at Alinga Consulting Group, explains the procedure and many aspects of declaring personal income tax and filing tax declaration in the Russian Federation. It addresses the issues of tax status (tax residents vs. non-residents of RF), tax rates for residents and non-residents, the categories and maximum amount of tax deductions among other issues.
Declaring Personal Income Tax
in the Russian Federation
According to Articles 227 and 228 of the Tax Code of the Russian Federation the following categories of individuals must file income tax declarations:
Registered individuals who conduct business without forming a separate legal entity must declare the income earned from that business activity;
Notaries and lawyers in private practice must declare income received for these professional activities.
Individuals who have received remuneration through civil contracts with other individuals who are not tax agents must declare that income. This includes income from contracts for rental or leasing agreements;
Individuals who have received sums for the sale of their own private property must declare that income;
Individuals who are tax residents of the Russian Federation, but who received income from sources outside Russia, must file taxes on that income. Members of the Russian military are excluded from this requirement. Also, if an individual is not a tax resident or if an individual changes his tax status during the tax period from resident to non-resident and remains a non-resident until the end of the tax period, no declaration need be filed and no taxes are due concerning income received outside Russia, even income received prior to obtaining non-resident status. This is according to Article 207 of the TC.
Individuals who have received income without a tax agent (such as an employer) withholding appropriate taxes (i.e. if the payment was made in kind and the individual did not receive any cash payments in the given tax period). They must declare the value of this income.
Individuals who have received lottery winnings, or winnings from any other "games of chance" (such as gambling). They must declare any such sums, no matter how large or small.
Individuals who have earned incomes from their ownership of intellectual property rights (whether in science, art, literature, discoveries, or inventions) must declare that income.
Individual who have received gifts from private individuals who are not family members (in accordance with the Family Code of the Russian Federation, Point 18.1 of Article 217).
Russians who meet the preceding requirements must file their declarations for the preceding tax period at their local tax office (according to where they are registered). Foreign citizens who fall into these categories must file declarations with the Interdistrict Inspectorate of Federal Tax Service No. 47.
Personal income taxpayers are divided into two categories: tax residents and non tax residents.
According to paragraph 2 of Article 207 of the TC, a tax resident is anyone who had spent no less than 183 days over the course of the 12 consecutive months inside Russia.
If a person left Russia for period of less than six months for medical or educational purposes, this time outside of Russia still counts toward establishing tax residency. Business trips abroad and travel due to family commitments are excluded.
A special tax status procedure is established for citizens of Belarus for withholding taxes on income received from Russian organizations. If a citizen of Belarus has entered into labor contract with Russian organization for at least 183 days, his income is taxed at the 13% rate usually reserved for those who have physically established tax residency.
Tax residents must pay 13 percent tax, except for money, goods, and/or services received as winnings or prizes in games, contests, and "other events conducted for advertizing purposes" whose total value exceeds 4000 rubles – these amounts are taxed at 35%.
Non tax residents pay 30 percent tax on income received from sources within RF (Points 1 and 3 of Article 224 TC).
Since the tax period for yearly income tax declaration ends Jan 1st, this means that personal income taxes will still effectively be figured for the calendar year preceding the year in which the tax declaration is filed.
According to the the Federal Law # 368-ФЗ from December 29, 2009 and Decree # 145н, income from the sale of property received by tax residents of the RF is exempt if the property was owned by the tax resident for three or more years. No tax declaration need be filed on such transactions.
Please note that this norm is not applicable for income received by individuals from the sale of security papers and other income from the sale of property used by individual entrepreneurs specifically for "income generating activity" or entrepreneurial activity.
A new version of the Personal Income Tax Form for Individuals (N 3-NDFL) was introduced by the Decree of the Federal Tax Service # MMB-7-3/501@ from November 14, 2013. Declarations filled out on paper can be submitted by the taxpayer to the tax office personally or by a legally authorized representative, sent by mail with a list of the contents, or sent electronically. Declarations for the calendar year must be submitted not later than April 30th of the following year.
According to Article 229, paragraph 1 of the TC, voluntarily filing of tax declaration is not limited by time frame. However, taxes paid in excess will only be refunded within three years (Article 78 paragraph 7 of the TC). It means that declaration claiming tax deductions and tax refund must be filed within three years from the date of tax payment.
Declarations must include the following documents as attachments:
Copy of all pages of passport;
Certificate from employer as to income received outside the RF, (written in free form), which must indicate the specific date of each payment;
A notarized power of attorney if an individual is submitting the declaration through a legally authorized representative;
Declaration and all support documentation for deductions, if the right to such is claimed.
Tax declarations may be filed voluntarily for the purpose of receiving certain tax deductions:
Standard tax deductions for taxpayer and child-dependants (in cases when deductions were not provided during the given tax period or which were provided in lesser amounts than those stated in Article 218 of the TC). Deductions may be applied only until income accrued since the beginning of the tax period becomes greater than 280,000 rubles. After this time, deductions may not be claimed.
Social tax deductions. Starting January 1, 2009, individuals may deduct the amount of premiums paid toward voluntary pension plans according to Federal Law # 56 from April 30, 2008.
In determining his/her tax base, a taxpayer has the right to claim certain social tax deductions. These include:
-- Monetary contributions for a humanitarian purpose – in the amount actually contributed, but not greater than 25% of income received during the tax period;
-- Sums paid by the taxpayer for the taxpayer's education – in the amount actually paid, but not exceeding 120,000 rubles.; Also, sums paid by the taxpayer for the education of the taxpayer's children. The children must be under 24 years old and the total deduction for both parents may not exceed 50,000 for each child;
-- The full amount of all medical expenses paid by the taxpayer may be deducted – however, the total deduction cannot exceed 120,000 rubles, except "expensive kinds of treatments" listed in the corresponding Government Order of the RF.
-- Sums paid toward non-government pension benefits and voluntary pension plans. This deduction may be applied by the following categories of taxpayers:
* those who pay pension contributions on non-government pension funds(s) that are documented in contract form;
* those who pay insurance premiums on voluntary pension plan(s) with insurance organizations (and documented in contract form).
Property-related tax deduction for property sales or purchase of property listed with the State Registrar. If the taxpayer has owned the property for over three years, the seller may deduct the full amount received (Article 220 paragraph 1 subparagraph 1 of the TC). If property was owned for less than three years, deduction must not exceed 1,000,000 rubles for the sale of residential property and land, and 250,000 rubles for the sale of other property. If the property-related tax deduction cannot be used fully in a given tax period, the remaining amount may be transferred to following tax periods until it is used in full.
Purchase of residential property (existing housing or plots of land designated for housing construction) is tax deductable up to 2,000,000 rubles.
Repeated use of the property-related tax deduction is not allowed; the deductions may be used only on the sale of one property each. Starting January 1, 2010, tax deduction for income received from the property sale is set at 250 000 rubles for the fiscal period, regardless of the number of objects sold.
A new Russian federal law has introduced changes to the Russian Tax Code. (Federal Law #212-ФЗ from July 23, 2013, came into power on January 1, 2014; it affects Article 220 off the tax code.) In particular, it grants the ability to make property-related tax deductions in their maximum amount without limitation on the number of property objects.
Moreover, property-related tax deductions on expenses for repayment of interest on special-purpose loans used for construction or purchase of residential property in Russia are now limited to 3,000,000 rubles. Previously these expenses were tax-deductible without limitations.
Professional tax deduction for income received for work (services) performed on the basis of civil contracts, and also for royalties or awards for the creation, execution or other use of works of science, literature, and art, royalties for discoveries, inventions, and prototypes (if such deductions were not already provided by tax agents).
Deductions only apply to earnings subject to the 13% income tax rate (Article 210 paragraph 3, Article 224 paragraph 1 of the TC). They are not applicable to taxes paid at any other rate.
It should also be noted that declarations for tax deductions can be filed at anytime throughout the year after payment for taxes has been received by the appropriate tax office. The tax declaration may include several tax deductions (for charitable donations, medical expenses, education, etc.)
Income tax must be paid into the budget no later than July 15.
We highly advise that copies of the payment documents and any other tax related documents be kept. Also, after submitting a tax declaration, the taxpayer should contact the tax authority to assure that there is no additional tax, fees, or fines owed. Even the slightest inconsistencies in the information on the tax declaration from what is submitted by banks or otherwise discovered by the tax authorities, and even failures and glitches in software can lead to fines.
Failure to file a tax declaration can result in a fine to the amount of 5% of the tax owed for each full or partial month the declaration is late is charged. This fine may not total 30% of the total sum of taxes due and may not be less than 1000 rubles.
Original article writen by Marina Sitnikova, Accountant, Alinga Consulting Group
Last update - March 12, 2014 by Liliya Kozlova, Financial Controller, Alinga Consulting Group
About Alinga Consulting Group
Audit and Taxation Legal Accounting and Payroll
Questions? Ask Alinga's Experts!