The Ministry of Finance of the Russian Federation refused the proposal to amend the Tax Code in terms of taxing the income of Russians employed in Russian companies who work remotely outside the Russian Federation. At the moment, the text of the amendments to the code is being coordinated in the relevant departments.
For the first time at the legislative level, they started talking about changing the income tax rate at the end of July 2022 due to the large number of employed Russians who moved abroad.
The initial changes provided that employers would withhold personal income tax at 30% for Russians – tax non-residents of the Russian Federation who stay in Russia for less than 183 days per year and work in a “remote” mode. For tax residents of the Russian Federation, the rate was to remain at the same level of 13-15%. This differs significantly from the current tax payment procedure, according to which a remote worker living abroad must pay the tax himself by submitting a completed 3-NDFL form to the tax. If work abroad is not provided for by the employment contract, the employer must withhold 13-15% of personal income tax if the employee is a resident of the Russian Federation, after the loss of residence – 30%. After a series of discussions in the Russian departments, the head of the Ministry of Finance issued a statement on the need to maintain the rate at 13% for non-residents.
This initiative was justified by the fact that, in principle, no personal income tax was paid on the income of remote workers, since they either lost their tax residency or paid income tax in countries with a lower rate. Employees of Russian companies could move from one country to another without obtaining tax residency in one of them, and, accordingly, without paying taxes either in Russia or in the host country.
Changes for freelancers
The new bill includes a number of other innovations. From January 1, 2024, changes may be introduced for Russian freelancers working with Russian companies under civil law contracts, in such cases, personal income tax in the amount of 13-15% will be withheld from residents’ remuneration, and 30% for non-residents. This will affect employees of companies whose technical bases are located in Russia and employees of the Russian IT segment. The law also provides for the following conditions: a freelancer must receive a fee to an account in a Russian bank or the payment is made by Russian companies or individual entrepreneurs.
However, these changes will not affect the self-employed and individual entrepreneurs, since these categories pay income tax on their own.
In addition to the Ministry of Finance, deputies of the State Duma also made a proposal to increase tax rates for the self-employed and individual entrepreneurs located abroad, in particular, the abolition of the self-employment regime (taxation of 4-6%), the abolition of tax benefits for those who left the individual entrepreneurs, and a ban on remote work in certain specialties in Russian companies for employees – non-residents of the Russian Federation. At the same time, some speakers of the State Duma suggest that the abolition of preferences can only worsen the situation with tax revenues, since Russians who have left will no longer pay any taxes.