Russian Federation: Tax Alert - 8/97 - 28 May 1997 - Personal Income Tax

Last Updated: 10 June 1997
This Tax Alert addresses Amendment No. 4 to Instruction No. 35 of the State Tax Service on Personal Income Tax which was published in the attachment to the Finansovaya Gazeta on 18 May 1997.

These amendments to Instruction No. 35 were issued further to the Federal Law of 10 January 1997 No. 11-FZ which introduced basic amendments to the taxation of individuals and was discussed in our Tax Alert No. 2/97 dated 30 January 1997. In particular, the amendments provide substantial guidance on the taxation of deposit interest, insurance premiums and payments, beneficial loans and the application of the housing construction exemption.


Interest received on bank deposits is now subject to personal income tax withholding to the extent that it exceeds the Central Bank refinancing rate for rouble deposits or 15% for deposits in hard currency. Taxable income arises on the date when interest is credited to the taxpayer's account.

This applies to deposits concluded, prolonged or amended after 21 January 1997 and to new amounts deposited after 21 January 1997 under existing deposit agreements.

For rouble deposits, non-taxable income is determined having regard to the Central bank refinancing rate effective during the whole of the period for which interest is accrued on the deposit. If the refinancing rate has changed during the period, then each separate refinancing rate effective within the period should be used for the purposes of the calculation. Any new refinancing rate should be used beginning from the month following the month of its change.

Banks are responsible for completing internal tax cards according to Appendix 7 to Instruction 35. These reflect the amount of benefit received by each individual and the personal income tax withheld at source. Banks however are not required to submit to the tax authorities any information about personal income tax withheld from the deposits.


In respect of insurance agreements concluded or prolonged after 21 January 1997, insurance premiums made by an employer for the benefit of an individual are subject to personal income tax withholding, unless they relate to state obligatory insurance or voluntary medical insurance under which the individuals enjoy only medical treatment and do not receive any monetary payments.

Only a limited number of insurance payments to individuals, (as mentioned in paragraph 7 of our Tax Alert No. 2/97), may be exempt from personal income tax, regardless of from which sources the respective insurance premiums were made, i.e. whether insurance premiums were made by the individual himself or by the employer for the benefit of the individual. All other insurance payments are subject to personal income tax withholding according to the procedure set out below.

Where Insurance Premiums Are Made By An Individual Himself:

personal income tax should be withheld by the insurance company at the rate of 15% of the difference between the insurance payment and the insurance premiums paid increased by a deemed profitability component established by the insurance company. Insurance companies are not required to file any information with the tax authorities about personal income tax withheld from such insurance payments, although they should complete internal tax cards in respect of each individual according to Appendix No. 7 of Instruction No. 35.

Where Individuals Are Insured At The Expense Of The Employer:

Insurance payments are subject to personal income tax withholding at source at a rate of 15% of the difference between the insurance payment and insurance premiums paid by the employer. In this case insurance companies are required to file information with the tax authorities about insurance payments made and personal income tax withheld according to Appendix No. 3 of Instruction No. 35, unless the insurance agreements provide that insurance payments are first to be transferred to the employer who then pays them out to the individuals. Under these circumstances the employer itself is responsible for personal income tax withholding and filing with the tax authorities.

Personal income tax withholding procedures as mentioned above should also apply in respect of long term (not less than five years) voluntary life insurance agreements, if they are terminated before the five year period expires. Under normal circumstances however insurance payments made under such agreements are exempt from personal income tax.

Interest Free Or Low Interest Loans

It has now been confirmed that individuals receiving beneficial loans (which include cash, bank transfers or goods valued at the market price effective on the date of the loan) shall receive deemed income computed as the positive difference between interest payable computed at two thirds of the Central Bank refinancing rate for the rouble loans or 10% for hard currency loans, and the actual interest paid. For interest free loans, loans without established dates of repayment and loans repayable upon request, the deemed income is imputed at two thirds of the Central Bank refinancing rate for the rouble loans and 10% for hard currency loans. This applies to all loan agreements concluded or prolonged after 21 January 1997.

For rouble loans, the Central bank refinancing rate effective during the whole period of the loan should be used for the purposes of the tax calculation. New refinancing rates should be taken into account from the beginning of the month following the month of its change.

Deemed income must be calculated on a monthly basis for the entire period of the loan based on the interest discount multiplied by the balance of loan outstanding at monthly rests. Personal income tax based on the total amount of deemed income received during the calendar year appears however to be calculated once a year. Thus, if loan is repaid before the end of the year, the deemed income 'earned' during the period of the loan should still be calculated along with personal income tax due.

It is still unclear whether the individual should file a tax declaration to declare the amount of deemed income 'earned' during the calendar year, or the employer (or other company providing the loan) should withhold the tax from other remuneration paid to the individual. Although the tax authorities may argue that the latter approach is supported by legislation (income received from the enterprises, institutions, organisations an other employers is generally subject to personal income tax withholding at source), there might be practical difficulties with this respect, especially where no other remuneration is paid to the individual by the lender.

Where a loan is provided by an entity other than the individual's employer, it appears that a tax declaration should be filed by the individual to reflect non-employment income received during the calendar year. It also appears likely that a tax declaration should be filed by individuals who receive beneficial loans from unregistered foreign companies.

We believe however that the tax declaration should not be filed if a loan is provided by the individual's employer and personal income tax is withheld by the company in full from deemed income 'earned' by the individual.

No Deemed Income Is Calculated In Respect Of The Following Payments:

  • loans provided by the employer against upcoming salary payments to the individual if given for less than one month and provided that these do not exceed the amount of the monthly salary;
  • loans provided to individuals who have entered into life insurance agreements, unless these exceed the amount of the insurance premium paid;
  • housing loans granted to the individuals under special government or municipal programs.

Housing Construction Exemption

It has now been confirmed that the housing construction exemption may be used by an individual only once in a lifetime. The amount of the exemption has been confirmed as 5,000 minimum monthly wages over a three year period but that the total claim may not exceed the individual's total gross income.

Based on the wording of the Instruction however it is not clear if the exemption is available during any three years of construction or consecutive three years. In addition, according to recent Letter of the Moscow State Tax Inspectorate No. 11-13/6091 dated 27 March 1997, it appears that exemption may be exercised during any ( though possibly not consecutive) years.

The new system applies to all purchase or construction contracts which were concluded after 21 January 1997. For individuals who started claiming the housing exemption in 1995, 1996 or before 22 January 1997, the old procedure should be followed and a maximum of 5,000 monthly minimum wages claimed for each year. Individuals who already used the housing deduction before 22 January 1997 may now apply for the exemption according to the new procedure.

The exemption is also available against repayments of bank loans received for the purposes of purchase (construction). The maximum exempt amount is the actual amount of loan principal and interest payable to the bank within the three year period. Loans provided by the enterprises and other credit institutions which are not licensed to such kind of operations do not attract this relief.

If actual housing expenses incurred by an individual during the calendar year exceed gross income received for the year, the excess may be offset against income received during the next two years, always provided that the 5,000 times monthly minimum wages for the three year period limit is not exceeded.

If an individual improperly claims the housing exemption, any benefit incorrectly accrued thereby may be treated as concealed income. This will create an exposure to severe financial or, in certain circumstances, criminal penalties.

The amended Instruction now clearly states that a spouse or other family member(s) of the individual may apply for this exemption only if they are listed as the joint purchasers (constructors) in the purchase (construction) documentation, regardless of whether they are treated as the joint owners of the property according to Russian legislation.

If you feel that any of the issues discussed above affect you or your employees, please contact your usual representative at Coopers & Lybrand in either Moscow or St Petersburg.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Alla Shaulina on tel: +7 503 232 5511 fax: +7 503 232 5522 or e-mail directly: or enter a text search 'Coopers & Lybrand' and 'Business Monitor'.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.