Effective control: the Federal Tax Service introduces automatic determination of tax residency

The Federal Tax Service (FTS) plans to introduce an automated system to determine the tax residency of individuals by 2025. The new system will be based on data on foreign passports and movement across the border, as opposed to the current method of determining status by stamps in passports.

According to the department’s plans, the automated functionality will become part of the Federal Tax Service’s information system Tax-3. It is expected that the introduction of this innovation into commercial operation will be completed by December 2025. The head of the International Cooperation and Currency Control Department of the Federal Tax Service has been appointed responsible for this project.

According to the current legislation, tax residents of Russia are individuals who reside in the country for at least 183 days within 12 consecutive months, regardless of citizenship or residence permits. The status of a tax resident is determined based on the time of stay in Russia, and the need for the calculation period of 12 months to coincide with the calendar year and the possibility of interrupting the period of stay in the country.

On the other hand, the status of a currency resident depends only on having citizenship or residence permits in Russia. For example, if a Russian citizen resides abroad for more than 183 days during 12 consecutive months, he or she loses the status of a tax resident but remains a currency resident. It is important to note that if a person stays abroad for more than 183 days and loses tax resident status, he or she is still not obliged to submit a report on the movement of funds in foreign accounts.

How residency will be determined

According to the activity plan of the Federal Tax Service, the automated information system “Tax-3” will be developed in two directions in order to determine tax and currency residency of individuals. The first direction is the automation of identification of persons crossing the state border using data on foreign passports. Today, tax residency is mainly determined on the basis of information on border crossing, which the tax authorities can request from border services in the course of inspections. The second direction is to automate the determination of tax and currency residency by identified individuals. This method will be implemented with the help of information received from the information system of the migration registration system, which is designed for migration and registration registration, production, execution and control of circulation of identity documents. The system was created in 2015 to prevent illegal migration and document forgery.

Implications of automation

The automation of the process of determining tax residency is an important step in the overall automation of the work of the FTS. This data is needed to verify the tax liabilities of individuals, affecting both the taxation of income and the application of appropriate tax rates.

Taxpayer status, whether resident or non-resident, determines the level of taxation of individuals. For example, for non-residents, the general rule provides for taxation of income from sources in Russia at the rate of 30%, except for remote employees of Russian companies. From 2025, the tax position of non-residents will worsen, including the introduction of a flat 15% tax rate on deposits. Residents with incomes up to 2.4 million roubles will retain the 13% rate. In addition, non-residents will retain a 15% tax rate on dividends and will lose their tax exemption benefits on the sale of shares held for more than five years.

Under current legislation, it is the responsibility of both tax agents and individuals to keep track of their tax status. Incorrect application of tax rates, non-payment or underpayment of personal income tax and failure to file reports may result in fines. Currently, the tax authorities do not have a reliable tool to control the tax status of individuals, so the automated determination of tax residency status represents an additional opportunity to strengthen control over PIT receipts to the budget.