Russian Federation: Personal Income Tax Changes

Last Updated: 11 March 1998
This Tax Alert describes changes introduced to the Law on Personal Income Tax (Federal Law of 31 December 1997 No. 159-FZ) as well as Amendment No. 5 to Instruction No. 35 of the State Tax Service on Personal Income Tax (Order of the State Tax Service No. AP-3-08/230 of 8 December 1997).

Changes to the Law

The amendments introduced by the Law on Personal Income Tax came into force from 4 January 1998 - the date of their official publication in Rossiyskaya Gazeta. The corresponding amendments to Instruction No. 35 should be introduced in the near future.

New rates of the tax and exemptions

The new personal income tax rates and income brackets are shown below. These apply to 1998 income (please note that the amounts are expressed in re-denominated roubles):

Taxable income received in the calendar year             Tax payableup to Rbls 20,000                                                12%
from Rbls 20,000 to Rbls 40,000    Rbls 2,400 plus 15% of the amount
                                               exceeding Rbls 20,000
from Rbls 40,000 to Rbls 60,000    Rbls 5,400 plus 20% of the amount
                                               exceeding Rbls 40,000
from Rbls 60,000 to Rbls 80,000    Rbls 9,400 plus 25% of the amount
                                               exceeding Rbls 60,000
from Rbls 80,000 to Rbls 100,000  Rbls 14,400 plus 30% of the amount
                                               exceeding Rbls 80,000
more than Rbls 100,000            Rbls 20,400 plus 35% of the amount
                                              exceeding Rbls 100,000

The new scale slightly eases the tax burden by introducing more brackets and increasing the level at which income is taxable at the highest rate. Exemptions for individuals, children and other dependants, which were previously granted in the amount of one statutory Minimum Monthly Wage (MMW) per month, will now be either nil, one or two MMWs depending on the cumulative income received during the year. The higher the income, the smaller the exemption provided.

Other changes

Companies are now obliged to remit amounts of personal income tax relating to employees at 'dependent' branches (those which do not maintain a separate balance sheet and settlement account), to the authorities where the branch is located; 'independent' branches should already withhold and pay over the tax in this way.

Tax declarations should now also be filed by individuals who receive income from two or more sources even if the combined total income is taxable only at the lowest tax rate.

Interest for late payment of tax by organisations and individual entrepreneurs has been reduced from 0.5% per day to 1/300th of the CBR re-financing rate per day (currently about 0.1%). Interest payable by other individuals remains at 0.3% per day.

Changes to the Instruction

Amendment No. 5 to Instruction of the State Tax Service No. 35 on Personal Income Tax was issued prior to the changes to the Law discussed above and deals with the filing of personal income tax declarations by individuals and the provision of information on employee earnings to the tax authorities.

New tax declarations forms

New tax declaration forms for both Russian nationals and expatriates have been introduced and it has been unofficially confirmed that these are to be used for declaring income earned in 1997.

While the new form for expatriates does not contain any significant changes (mainly additional information to be provided about the individual's employer), the new declaration for Russian nationals is very different from the old form. It consists of thirteen pages (of which three are obligatory while completion of others depends on the individual's circumstances) and contains separate sections for declaring different types of income according to a new system of codes. According to the tax authorities the new form is easier to complete.

Provision of information to the tax authorities

Further to changes introduced to the Law on Personal Income Tax in June 1997, Instruction No. 35 has also been amended to establish new procedures for Russian legal entities and representative offices providing information on the amounts of income paid to employees and entrepreneurs. For income earned in 1998, reporting is required as follows:

  • on a quarterly basis, not later than the first day of the second month following the end of the quarter - in respect of individuals who are not permanent employees of the entity/representative office (including those individuals working under civil law agreements);on an annual basis, not later than 1 March of the year following the reporting year - in respect of permanent employees.

The forms on which this information is to be provided have also been changed. These must be provided in hard copy unless the employer qualifies as one which is required to forward these details electronically. Employers so qualifying include:

  • companies which are professional participants in the capital markets;insurance companies;credit institutions;all employers with an average number of employees exceeding 100.

Other changes

Companies paying out the proceeds of securities sold by or on behalf of individuals may now deduct properly documented purchase expenses incurred by the individual. The income so defined is subject to personal income tax withholding. Previously, such expenses were only deductible on filing an annual tax declaration.

If you feel that any of the issues described above affect you and you would like to discuss them further, please address your usual contact with 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:

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