The Russian Federal Tax Service ("FTS") has prepared a
letter clarifying criteria for determining the Russian tax
residency for individuals (the "Letter").
Currently the Russian Tax Code views an individual as a Russian
tax resident if they are physically present in Russia for
183 days in any 12 month consecutive period. This definition is
exhaustive and does not refer to any other sources, or allows for
any substantial interpretation.
The letter of the FTS refers to the provisions of the
international double tax treaties concluded by Russia, specifically
stating that an individual can become a tax resident in Russia,
if they have a permanent home in Russia, or if their
centre of vital interests is in Russia. The letter further
clarifies that the home is permanent if it is owned by an
individual, or if it is a place of permanent official registration.
The centre of vital interests is explained as the place where the
individual's family lives, his business is based or
where they are employed.
Most surprisingly, the FTS concludes that the fact of a physical
presence in the Russian Federation for less than 183 calendar days
within 12 consecutive months does not lead to an automatic loss of
a tax resident status in Russia.
We believe that the argument presented in the letter is
incorrect. Reference to the provisions of the international
treaties should only be made in cases where an individual acquires
tax resident status in two contracting states: this is not possible
in instances where the Russian domestic residency test is not
Letters of the FTS do not have status of law and are not
binding. In practice, however, clarifications given by the FTS can
be used as guidelines for interpretation of the law by both Russian
courts and tax authorities.
We do not believe that the letter changes the definition of the
Russian tax residency; however, it reminds us that the current
simplicity of the residency definition is likely to be temporary
and can be revisited by the Russian legislator shortly.
Amendments to the tax residency definition will have significant
effect on individuals who spend substantial number of days in
Russia and has various other ties with Russia, but who are not
caught by the current 183 day rule.
Specifically, it can have severe effect on individuals, who in
2015 adopted the strategy of ceasing tax residency in Russia to
avoid disclosure and taxation in accordance with the new Russian
Controlled Foreign Companies regime.
We are monitoring further developments and will notify you of
further changes. If you would like us to help you to successfully
plan your tax strategies, please contact Olga Boltenko or any other
member of the Withers Russia and CIS team.
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.
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