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From January 1, 2024: authorities proposed to oblige business to charge 30% personal income tax from employees who went abroad

Photo by Austin Distel on Unsplash

On Monday, April 24, the Russian government sent to the State Duma a bill on amendments to the Tax Code concerning citizens working abroad. If the document is approved, businesses would be obliged to charge an increased personal income tax (PIT) on employees who have gone abroad.

“According to the proposed amendments, from January 1, 2024, Russian companies -employers and customers will charge personal income tax at a basic rate of 13-15% on remuneration of employees or performers who have left the country, and after the loss of tax residency – 30%,” the website of the lower house of parliament says.

Note that tax residents of the Russian Federation are those who have been in Russia for at least 183 days during the year, and not necessarily in a row. Otherwise, a person loses the status of a tax resident of the country.

Since January 1, 2021, Russia has a progressive tax scale. So, today, for all tax residents of the Russian Federation who earn more than 5 million rubles per year, the personal income tax rate is 15%, and for all other citizens – 13%.

In turn, non-residents are already required to pay an income tax of 30%, but they have to do it themselves. Meanwhile, the Cabinet now proposes to transfer to employers all responsibility and control over compliance with payment of personal income tax by such employees.

“In principle, the initiative is justified, as companies are easier to check their employees-contractors than the tax authority. The amendments are rather aimed at bringing back those who have left for Russia and at encouraging those who are going to do so not to leave,” Pavel Gerasimov, CEO of the Padva & Epshtein law firm, told .

According to the Duma, the innovations will affect all citizens who have left the country and who use the Russian segment of the Internet or technical and software-hardware facilities hosted in Russia for work. The increased tax will be levied if a person receives remuneration to an account in a Russian bank or if the payment comes from domestic organizations, individual entrepreneurs and the separate subdivisions of foreign structures in the RF.

“Russian companies will themselves determine in each case what rate of personal income tax to apply, assessing whether their employee or contractor carries out its activities in Russia or not”, – added in the State Duma.

However, as clarified by the Ministry of Finance, the amendments will not affect employees who have left Russia, if they work under labor contracts – for them, the tax conditions will not change in any way. At the same time, the Ministry stressed that at the moment the bill is still being finalized.

If in the end the government’s initiative will be approved, working abroad Russians will be more difficult to evade taxes. This opinion was shared with by Polina Gusyatnikova, senior managing partner of PG Partners law firm.

“The innovations are unlikely to have any serious impact on those employers and employees who previously acted in compliance with the law. If someone was trying to avoid taxes in such a way, now it will be harder for them to do so. Perhaps such a measure would really be an incentive for someone to go back to the country,” the interlocutor did not rule out.

Director of the Center for Conjunctural Research Institute of Statistical Studies and the Economics of Knowledge HSE Georgy Ostapkovich expressed a similar point of view in an interview with . The expert believes that, first of all, the initiative is aimed at returning to Russia employees in the IT sector.

“People in this industry can perform their functions remotely to the fullest extent. In addition, it is from the IT-sector that most of the Russians have gone abroad. But we must be very careful to find out who left Russia and for what reason, and to introduce any tax innovations thoughtfully and carefully, so as not to scare people away. The financial reason for the amendments is clear: these workers get their salaries from Russia, and consumer demand is supported abroad,” Ostapkovich explained.

Alexander Kalinin, president of All-Russian public organization of small and medium business “Opora Russia”, holds a similar position. According to him, many of those who have left continue to pay one of the lowest income taxes in the world, but live and spend most of it in other countries, which is negative for the Russian economy.

“One of the key goals of the project is to replenish the budget. Income tax goes primarily to the regional and municipal budgets, and they form social expenditures, salaries of state employees and infrastructure spending in the regions of Russia. So it is a good and socially just cause,” Kalinin concluded.

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