News about business, accounting and taxes in Russia

Personal income tax payable by employees of Russian companies working remotely from abroad

The procedure for taxing the income of employees that work remotely from abroad for Russian tax residents has been changed, both for those that work under employment contracts and under civil law agreements (GPC). If previously there were grounds not to tax the income of such non-residents in the Russian Federation, now they will be subject to personal income tax at a rate of 13% (or 15% on income exceeding 5 million rubles per year).

Personal income tax will have to be withheld:

➢ From 2024 onwards – from any income of an employee from a Russian employer under an employment contract;
➢ From 2025 onwards – from income, received under a GPC agreement, if the service was provided via the Internet using Russian domains, servers in the Russian Federation, etc., if at least one of three conditions is met:

  • the individual in question is a tax resident of the Russian Federation;
  • the income is transferred to his account in a Russian bank;
  • the source of the income payment is Russian.

Important to know for employers

Employers will not have to track the location of their employees “remotely” - in any case the tax must be withheld at the rates for residents.

Currently, organizations practice different approaches to withholding personal income tax from the income of people working for them abroad. If presently the provisions of the Tax Code of the Russian Federation allow not to withhold the tax when paying salaries abroad, from 2024 the tax will have to be withheld in accordance with the new law.

Please note that the 30% tax rate for non-residents who work in the Russian Federation remains valid. It is difficult to assess the fairness of that circumstance. Without equalization of rates for non-residents working in the Russian Federation and outside the territory of the Russian Federation, the former may find themselves in a less favorable situation.

Important to know for Russian tax residents

For Russian tax residents, the tax burden will not change - their income will continue to be taxed at standard rates of 13%/15%. At the same time, they won’t have to file a tax return, as used to be the case when the tax on income for work from abroad was not being withheld at the source of the income.

For employees whose employers currently take a conservative approach and tax such income at 30%, this change may even be good news, since the withholding tax rate is reduced (barring the issue of double taxation, which we will discuss below). For those employees whose employers presently do not withhold personal income tax, the tax burden will increase.

About double taxation treaties (DTT) and tax offset

If there is an applicable DTT: if a citizen lives in a foreign country, is a tax resident there, declares and pays tax there on income received for work outside Russia, despite the fact that personal income tax on such income was withheld by the Russian employer, it will not be possible to offset the Russian tax in this state, since in such circumstances the offset is not provided for by the DTT. In this case the person in question can apply to his employer for a personal income tax refund.

If there is no DTT or Russia has suspended the DTT: it will likely not be possible to offset the foreign tax in either country, resulting in double taxation.
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