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Personal income tax (PIT)

Personal income tax (PIT)

PUBLICATIONS \ 23.06.2021

Personal income tax is one of the principal direct taxes. Two groups of individuals are payers of the tax:

  • tax residents of the Russian Federation who are individuals actually spending in Russia at least 183 calendar days during a year throughout 12 subsequent months;
  • foreign nationals who are individuals who are not tax residents of Russia but who receive income from sources in the Russian Federation.

Under article 217 of the Russian Tax Code (the “Tax Code”) not all income of individuals is subject to personal income tax.

IINCOME TAX RATE

AMOUNT OF TAX = TAX RATE * TAX BASE

The Tax Code provides for five tax rates, ranging from 9% to 35%. The rate of personal income tax depends on the following:

  • the status of the individual; and
  • the type of the taxpayer’s income.

The tax base is determined separately for each type of income with respect to which different tax rates have been established.

Most income is subject to a tax rate of 13%. Such income includes an employee’s salary, fees under independent contractor agreements, proceeds from the sale of property and some other income of individuals who are Russian residents. It also comprises income from undertaking employment as a highly skilled professional, a participant in a state programme for assisting Russian nationals living abroad to voluntarily move to the Russian Federation, and members of crews of ships under the Russian national flag who are not Russian residents.

An increased rate of PIT has been introduced from 1 January 2021 on individuals’ income that exceeds RUB 5 million. This change means that the tax should now be calculated according to new rules:

  • if an individual’s annual income is less than RUB 5 million, the tax is calculated at the rate of 13%;
  • if yearly income exceeds RUB 5 million, the tax should be calculated at the rate of 15% on the excess plus RUB 650,000.

Such definitions as the “main tax base” and the “aggregate of tax bases” have been also introduced. A threshold figure and a progressive PIT rate will be applied to the aggregate of the bases. The base for Russian tax residents includes income from:

  • the main tax base – salary;
  • a membership interest, including in the form of dividends of a foreign entity which an individual has declared in the tax return;
  • winnings from gambling and lotteries;
  • transactions with securities and derivatives;
  • REPO transactions, with securities being their subject matter;
  • transactions involving borrowings with securities;
  • in the form of amounts of profits of a controlled foreign company;
  • obtained by the members of an investment partnership.

PIT at the 15% rate will also be in effect for Russian non-residents’ income that is higher than RUB 5 million. The list of such income is stated in article 210(2)(2.2) of the Tax Code.

In 2021-2022, the progressive rate of personal income tax will be applied to each tax base separately. The 13% tax rate will also be preserved when the following income is calculated:

  • from the sale of property (except for securities);
  • from property received as a gift;
  • in the form of insurance payouts under insurance contracts and retirement benefits.

A company acting as a tax agent will be released from any liability under article 123 of the Tax Code in Q1 2021 for errors in calculating and withholding tax at the higher rate. To avoid liability, such company will have to individually pay the outstanding amount of PIT to the Russian state budget by 1 July of the next year.

The above change means that personal income tax needs to be withheld from employees as follows:

Employee’s tax statusPersonal income tax rate, %
Resident (including foreign nationals)13% – on an amount of income less than RUB 5 million;15% – on an amount of income higher than RUB 5 million plus RUB 650,000.
Non-resident (including foreign nationals) *30%
Highly skilled professionals13% – on an amount of income less than RUB 5 million;15% – on an amount of income higher than RUB 5 million plus RUB 650,000.

*An exception is provided for specific categories of non-resident employees: their income is to be taxed at lower rates. When the 13% and 15% rates for which article 224(3.1) of the Tax Code provides are used from 1 January 2021, the tax will be calculated cumulatively (article 226(3) of the Tax Code).

A 9% tax rate is applied in cases of the receipt of dividends (before 2015), interest on mortgage-backed bonds issued before 1 January 2007, and the receipt of income by the founders of mortgage pool trusts.

Dividends received from companies by individuals who are not Russian tax residents will be taxed at the rate of 15%.

All other income of non-resident individuals is subject to the 30% rate.

The highest rate of 35% is applied to all winnings from competitions and gambling, as well as interest rates on bank deposits and other cases specified in the Tax Code.

TAX DEDUCTIONS AND THE PROCEDURE FOR OBTAINING THEM

Taxpayers are entitled to use a tax deduction and thereby to decrease the amount of their taxable income. The Tax Code also provides for tax deductions allowing taxpayers to have a portion of the tax paid previously to the state budget returned in connection with the certain types of expenses incurred, such as an acquisition of property.

Depending on their objectives, tax deductions fall into types and sub-types. The amounts and conditions for applying such deductions differ drastically. Individuals whose income is subject to the 13% PIT rate can be granted the following tax deductions: standard, social and property deductions.

A standard tax deduction is granted to an employee when he or she:

  • has a dependent child – a ‘child’ personal income tax deduction;
  • has a particular status, award or incapacity – a ‘personal’ tax deduction.

All ‘personal’ tax deductions are granted in the amount of:

  • RUB 3,000 – for individuals listed in article 218(1)(1) of the Tax Code (e.g. individuals who contracted or suffered from radiation sickness, Chernobyl survivors, etc.);
  • RUB 500 – for individuals listed in article 218(1)(2) of the Tax Code (e.g. individuals with lifelong disabilities, individuals under disability groups 1 and 2, etc.).

‘Child’ tax deductions are granted in the amount of:

  • RUB 1,400 – for the first and second children;
  • RUB 3,000 – for the third and every subsequent child;
  • RUB 12,000 and RUB 6,000 – for disabled children.

The standard PIT deductions will be granted to an employee by the employer within a year. If an employee has not received any deductions at work, he or she will be able to receive the deductions at the year-end by applying to the tax office at the place of his or her residence.

Individuals who had the following costs are entitled to a social tax deduction:

  • education – their own or of their relatives;
  • medical treatment – their own or of their relatives, as well as medicines and mandatory medical insurance policies;
  • for charitable purposes and donations;
  • private pension schemes, mandatory pension insurance and mandatory life insurance;
  • additional insurance contributions to the funded part of a pension.

The maximum amounts of social deductions are as follows:

  • the amount of expenses actually incurred, without limitation – for expensive medical treatment;
  • RUB 50,000 – for the education of children;
  • the amount of expenses actually incurred, but not more than 25% of taxable income for a year – for charitable activity;
  • RUB 120,000 – in the remaining cases.

If during a year you had expenses for various social purposes, you will be able to simultaneously claim several social tax deductions at the end of the year. For example, on your child’s education and your own expensive medical treatment. These are two separate deductions each of which can be claimed.

A deduction can be claimed within 3 years after an individual sustained the relevant expenses. In other words, one can claim a deduction for expenses for 2018 by filing a 2018 tax return not later than the end of 2021.

A property tax deduction can be granted to employees in the following cases:

  • when they buy housing or a land plot designed for construction or which already has housing – in an amount not greater than RUB 2 million;
  • the purchase of housing or a land plot where credits or loans are drawn – in an amount not greater than RUB 3 million;
  • the sale of housing which was owned for less than the minimum ownership period indicated in article 217.1 of the Tax Code – in an amount not greater than RUB 1 million;

Tax deductions can be obtained either through one’s employer or individually at a tax office.
Below is the set of documents necessary to apply to the tax office (article 219 of the Tax Code):

A personal income tax return is the ground for receiving a tax deduction. In addition to the tax return, a taxpayer should submit the documents confirming his or her entitlement to the tax deduction. The deduction can be obtained both through an employer and a tax office.

30 April is the deadline for the filing of a personal income tax return by certain categories of taxpayers who should declare their income individually. These include:

  • individual entrepreneurs;
  • notaries, attorneys and other individuals who are in private practice;
  • individuals, on remuneration received other than from tax agents;
  • individuals, on amounts received from the sale of property;
  • individuals who are Russian residents, on income from sources outside Russia;
  • individuals, on income on which no tax was withheld by tax agents when such income was received;
  • individuals who receive winnings paid out by the organisers of lotteries and other gambling activities;
  • individuals who receive income in the form of remuneration paid to them as heirs of authors of works of science, literature, arts, or inventions;
  • individuals who receive income as a gift from other individuals.

For more detailed information regarding personal income tax, please refer to Chapter 23 of the Tax Code.

Acsour