Russia to Increase Personal Income Tax

The Russian Federation had a consistent personal income tax (PIT) rate for the last 20 years. All Russian…

The Russian Federation had a consistent personal income tax (PIT) rate for the last 20 years. All Russian citizens paid a 13% tax on their income.

How much will the PIT increase?

On June 23, 2020, it was reported that the personal income tax rate would be raised from 13% to 15%. This change applies to residents whose annual income exceeds 5 million rubles (about 417 thousand rubles monthly). Thus, income up to 5 million rubles will be subject to the current tax rate (13%), and any income above that figure will be taxed at 15%.

Most probably, all the funds received by the government from the increased PIT rate will be directed for the treatment of children with severe rare conditions.

PIT augmentation: What should owners of controlled foreign corporations (CFCs) do?

The PIT change will affect citizens with upper-middle-income, including those doing business abroad. A sharp PIT increase may provoke another business emigration wave, with a negative impact on Russia’s budget. Aware of the potential consequences, the Russian Government decided to “sugar” the news for owners of controlled foreign corporations (CFCs).

There are plans to exempt CFC owners from the complicated reporting process and PIT payment. CFCs will be charged a fixed tax of 5 million rubles annually, without any additional statements required. This amendment will make life easier for CFC owners who live in Russia and receive their principal income from foreign companies.

Another lifehack for CFCs: foreign companies registered in a country with which the Russian Federation has a treaty for the avoidance of double taxation are exempt from the tax burden. Russian Government is currently reviewing treaties with some countries, including Cyprus and Malta.

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