Obligation for Russian tax residents to declare and pay personal income tax
The deadline for submitting personal income tax returns for 2020 on 3-NDFL form is April 30, 2021. Accountor tax consultants let you know to whom and when personal income tax returns should be submitted and describe the possible penalties for unintentional and deliberate failure to declare income and pay personal income tax.
Tax resident status
The status of payer of personal income tax (PIT) is defined in Article 207 of the Russian Tax Code. Individuals (whether Russian or foreign nationals) must PIT in two cases:
- If they are tax residents of the Russian Federation;
- If, although they are not tax residents of the Russian Federation, they receive income from sources located in the Russian Federation.
An individual is recognized as tax resident if he/she has actually stayed in the Russian Federation at least 183 calendar days in 12 consecutive months. The period of stay in the Russian Federation is not interrupted by short-term (less than 6 months) trips for treatment, training, as well as for work or other duties related to the performance of work (provision of services) on offshore raw hydrocarbon deposits (Article 207(2) Russian Tax Code).
Article 207(2.1) and (2.2) of Federal Laws provided for exceptions to the rules for determining tax residency twice in 2015 and in 2020. If necessary, the status of tax resident in 2020 may be confirmed until April 30, 2021. Read more about the procedure for recognizing tax residency in 2020. The status of Russian tax resident for double taxation treaty purposes may be confirmed based on an application to the Federal Tax Service (Item 5 Procedure set out in Appendix N 3 to Federal Tax Service Order N ММВ-7-17/837@ dated November 07, 2017). The application can be submitted via the electronic service.
Organizations and individual entrepreneurs are tax agents for personal income tax if they pay income to individuals except for the cases set out in Article 227, Article 221.1, and Article 228 of the Russian Tax Code.
Employers are tax agents for salary payments. When employers pay wages, they must remit PIT to the budget. In such case, individuals are not required to declare income and pay taxes themselves.
In most other cases, taxpayers must declare and pay PIT themselves. For example, a taxpayer who has:
- Received income from sources in the Russian Federation and abroad (Russian and foreign nationals who are Russian tax residents);
- Received income from sources in the Russian Federation (those who are not Russian tax residents);
- Sold property owned for less than a certain period (the specific periods of ownership are set and provided for categories of property in Article 217.1(3) of the Russian Tax Code);
- Received a gift from someone who is not a close relative (if the total value of the gifts exceeded RUB 4,000 in the year);
- Won more than RUB 4,000 in prize draws, including those held by companies to promote their products and services;
- Won more than RUB 15,000 in the lottery;
- Received a non-cash prize (e.g. a trip ticket, car, apartment, or house).
Personal income tax return (3-NDFL)
Russian and foreign nationals are to submit their tax returns and pay PIT on their own upon receipt of taxable income when tax is not withheld and declared by tax agents. 3-NDFL tax returns may also be filed by taxpayers voluntarily even if they have not received undeclared income to get, for example, tax deductions. The following must be indicated in 3-NDFL tax returns:
- All income received in the tax period unless otherwise provided in Article 229 of the Russian Tax Code;
- Sources of payment of income;
- Tax deductions;
- Amounts of tax withheld by tax agents;
- Amounts of advance payments made;
- Amounts of tax (additional tax) payable or refundable at the end of the tax period (Article 229(4) Russian Tax Code).
Documents supporting taxpayers’ income and expenses must be provided with tax returns.
Deadlines for submission of personal income tax returns (3-NDFL). PIT returns must in general be submitted by April 30, and tax must be paid no later than July 15 of the year following the reporting year.
If a foreign national who has received taxable income intends to leave the Russian Federation, then such foreign national must submit his/her tax return no later than one month before leaving the Russian Federation (Article 229(3) Russian Tax Code). In this case, the deadline for tax payment is within 15 calendar days of the date of tax return filing.
3-NDFL forms may change every year:
- For income received in 2020 – Federal Tax Service Order от 28.08.2020 N ЕД-7-11/615@
- For income received in 2019 – Federal Tax Service Order от 07.10.2019 N ММВ-7-11/506@
- For income received in 2018 – Federal Tax Service Order от 03.10.2018 N ММВ-7-11/569@
Filling out and filing options
Tax returns may be filed:
- By a representative;
- By registered mail with a list of enclosures. The date on the postal stamp will be deemed the date of tax return submission;
- Electronically. In this case, an electronic signature is required;
- Through an online taxpayer account on nalog.ru (a registration card with user account details from the Federal Tax Service will be required).
If an individual fails to declare income and does not pay tax, the following will happen:
- Personal income tax will be accrued and collected;
- Penalty interest will be calculated as a percentage of the unpaid tax amount in the amount of 1/300 of the Central Bank of Russia rate for each calendar day of delay in tax payment (Article 75(4) Russian Tax Code);
- A fine of 20% (40% in case of deliberate non-payment) of the calculate personal income tax will be imposed (Article 122 Russian Tax Code);
- A fine for violation of the deadline for submission of tax return in the amount of 5% of the late unpaid tax amount for each day of full or incomplete month from the date set for submission of tax return will be imposed, but not more than 30% of this amount and at least RUB 1,000 (Article 119(1) Russian Tax Code);
- If an individual has evaded paying taxes on a large scale, the following sanctions could be imposed (Article 198(1) Russian Criminal Code):
- A fine from RUB 100,000 to RUB 300,000 or in the amount of the individual’s salary or other income for a period from 1 to 2 years;
- Compulsory labor for up to 1 year;
- House arrest for up to 6 months;
- Imprisonment for up to 1 year.
- In case of tax evasion on an especially large scale, the following sanctions could be imposed (Article 198(2) Russian Criminal Code):
- A fine from RUB 200,000 to RUB 500,000 or in the amount of the individual’s salary or other income for a period from 1.5 to 3 years;
- Compulsory labor for up to 3 years;
- Imprisonment for up to 3 years.
- Depending on the circumstances, transactions may in some cases be qualified in such a way that other taxes and charges may also be imposed, and other sanctions may be applied (for example, additional VAT is charged, a criminal case is initiated on grounds of illegal business operations, etc.).
The number of countries with which the Russian Federation exchanges tax information automatically is constantly increasing. An up-to-date list of such countries has been approved by Federal Tax Service Order N ЕД-7-17/788@ dated November 3, 2020.
Foreign nationals who are awarded the status of tax and currency resident in the Russian Federation must:
- Notify the Federal Tax Service of bank accounts and accounts in other financial organizations abroad as well as provide cash flow statements for these accounts;
- Comply with Russian currency laws. For example, a foreign national has received the payment for dividends in an account in a country that does not exchange tax information with the Russian Federation, this currency transaction will be deemed unlawful from a Russian law standpoint and will be subject to a fine from 75% to 100% of the transaction amount. Transactions in foreign currency between two Russian currency residents are also unlawful.
Our tax consultants and lawyers can shed some light on what declaring and paying taxes entails for Russian and foreign nationals when they receive income from sources in the Russian Federation and abroad. Feel free to contact us to get more advice.