Taxation of a foreign citizen with a residence permit

Contents:

• What are the income tax rates
• How is the tax rate determined?
• What income is subject to income tax?
• Recalculation of tax upon obtaining the status of a resident
• Is it possible to pay less taxes?

A residence permit in Russia gives many advantages to a foreign citizen living in our country. This also applies to the ability to work without the need to issue permits. However, when applying for a job, a foreigner with a residence permit must consider not only the need to collect a package of necessary documents, but also the taxes that the employer will calculate and transfer to the budget.

In this article, we will analyze meticulously what taxes a foreigner is required to pay as a tax agent in Russia.

What are the income tax rates

In Russia, according to the current tax legislation, there are two most common rates at which personal income tax is calculated – these are 13 and 30%. The choice of rate will depend on how much time the foreigner has spent on the territory of the Russian Federation over the past year.

If a foreigner stayed within Russia continuously for six months, then by law he is recognized as a tax resident of the Russian Federation and the tax rate in this case will be 13%. Also, when determining the tax rate, it will be considered whether the foreigner left the territory of Russia and for how long. If a citizen left the country, and then came back and started working, for tax purposes, according to the documents, it should be determined whether the employee stayed in the Russian Federation for 183 days over the past 12 months. In addition, the status of a tax resident and the rate of 13% are not lost when a foreigner leaves for short-term treatment, goes to study for a short period (less than 6 months) or goes on business trips abroad to perform work duties.

In other cases, not mentioned above, a foreign citizen will have the status of a tax non-resident, and their salary income will be subject to personal income tax at a rate of 30%.

How is the tax rate determined?

The status of a tax resident or non-resident is set automatically, based on the amount of time that a foreigner spent in the territory of the Russian Federation.

If, according to available information, a foreign citizen has been in Russia for at least 183 days in the last calendar year, then he is recognized as a tax resident and his income will be taxed at 13%. For foreigners who arrived in Russia recently, a rate of 30% will apply. After a foreigner spends six months in Russia, he can obtain the status of a tax resident. To do this, you must provide the necessary migration documents confirming your stay on the territory of the Russian Federation. Resident status makes it possible to pay personal income tax at a reduced rate. It is important to note that the employer is obliged to recalculate taxes after the employee receives tax resident status, as well as return the overpaid amount.

What income is subject to income tax?

According to Russian law, all income received from a source in Russia is subject to taxation. Thus, this applies to wages, payments for services rendered under a service agreement or GPC, bonuses, dividends, interest on deposits, income from the sale of assets.

To carry out labor activities, a foreigner must conclude an employment contract with an employer. Alternatively, a foreigner may conclude a civil law contract (GPC). In this case, the tax rate in both cases will be the same.

When choosing a contract, it should be borne in mind that the employment contract provides for the calculation of personal income tax by the employer and the payment of tax by the accounting department. Under a civil law contract, payment obligations may be assigned to the employee. But such a condition is prescribed in the contract itself. If there is such a clause, then the foreigner must himself submit a declaration in the form of 3-NDFL at the end of the year, report on all amounts received under a civil law contract, independently calculate, and pay income tax.

It is important to note that such a declaration must be submitted no later than April 30 of the year following the reporting year.

Recalculation of tax upon obtaining the status of a resident

If during the year a foreign worker received the status of a resident, that is, he stayed in Russia for 183 days within 12 months, a rate of 13% will be applied to his income received from the beginning of the year. Also, the accounting department will need to recalculate the tax base and tax from January. The overpayment of personal income tax will be offset against the payment of personal income tax from the future income of the employee until the end of the year. If at the end of the year there is an overpayment, the foreigner will have to apply to the IFTS for a tax refund by submitting a 3-NDFL declaration.

Is it possible to pay less taxes?

A foreigner with a residence permit – a tax resident – can reduce the amount of personal income tax transferred to the budget due to tax deductions. Tax deductions allow you to compensate for taxes paid for the previous tax period by returning a certain amount. Primarily, this applies to standard and social deductions.

• Standard deductions are popularly called “for children”. The size is as follows: for the first and second — 1,400 rubles each, for the third — 3,000 rubles. If a disabled child is under 18 years old — 12,000 rubles. Such a benefit is provided until the income from the beginning of the year does not exceed 350 thousand rubles.
• Social tax deductions are a refund of part of the amount spent on the treatment of yourself or a minor child, as well as on the education of yourself or a child. You can return a maximum of 13% of 120,000 rubles per year for each item. That is, the tax deduction in each case will be 15,600 rubles.

The standard deduction is issued by the employer upon presentation of copies of the birth certificates of children and the employee’s application. To apply for social deductions, you will have to collect a package of documents, which include:

• A certificate of 2-personal income tax on the amount of wages and taxes paid.
• Declaration of 3-personal income tax.
• Payment receipts.
• Contract with a university or medical center.
• University/medical center license.
• A certificate confirming the costs of treatment.

In the latter case, you can return the entire amount immediately by submitting documents to the Federal Tax Service or sending them to the employer. In the latter case, he will not withhold tax until the entire amount is returned.  

Results

Taxation for a foreign citizen with a residence permit in the Russian Federation does not differ significantly from taxation for citizens of the Russian Federation. This is a positive moment for foreign citizens. It is also worth noting that foreigners with a residence permit can count on tax deductions from the state, which allows you to save part of the funds that go to pay taxes. Therefore, when applying for a job, it is important for an employer and a foreign employee to consider all of the above in order to properly report to the tax service on accrued taxes and not lose funds due to errors or inaccuracies.

If you have problems or difficulties with the calculation and payment of taxes, it is important to seek competent legal advice. VALEN’s lawyers will help resolve the issue for legal entities and individuals by understanding each situation individually.