All income received in the course of a calendar year from employment is subject to PIT. This includes all earnings, bonuses, and other forms of payment or remuneration in cash or in kind.
For expatriates, taxable income includes allowances paid to employees living in Russia and compensation for food and travel by employees and their families on holiday, and other non-business purposes. Benefits in kind are taxed at their monetary equivalent (market price).
Employer’s contributions to Russian-licensed non-state pension funds and under pension insurance agreements (with a licensed insurance company) are not taxable for the employees, whereas the respective pension and insurance payments are taxable.
Stock options are a quickly developing area for both multinational and Russian companies doing business in Russia. However, there are currently no special rules for the taxation of stock option plans, and their tax treatment is based on the general provisions of the law, which may be subject to various interpretations. Generally, an individual is taxed at grant, based on modified Black-Scholes formula, and on exercising the option, on the difference between the fair market value of the shares at exercise and the exercise price.
Individuals receiving income from entrepreneurial or similar activities are supposed to be properly registered. Taxation of individual entrepreneurs depends on the applicable taxation system.
There is no separate capital gains tax in Russia. Instead, gains from the disposal of property and assets are subject to income tax at the normal rate. The taxable amount is calculated as the difference between (i) sale proceeds and (ii) historical cost or application of a statutory exemption.
A statutory exemption is available for tax residents only. It is provided for all property sold during a calendar year and is limited to RUB 1 million in the case of real estate and RUB 250,000 for other property.
Proceeds received from the sale of real estate are excluded from taxation for both residents and non-residents if the property is owned for more than five years (with certain exceptions). Proceeds from the sale of other property (e.g. cars) are non-taxable if property is owned for more than three years. Starting in 2019, the exemption is also applicable to gains on certain assets disposed of in the course of entrepreneurial activities.
Additionally, the legislation sets special rules for transactions with securities and derivatives.
From 2021, income from sale of shares and participatory interest, both in Russian and foreign entities, may be exempt from taxation after a five-year ownership term, provided certain conditions are met.
Dividends received by residents from both Russian and non-Russian sources are taxed at 13%/15%.
Dividends received by non-residents from Russian companies are taxed at 15%.
As of 2021, interest income received on deposits with all banks in Russia should be summed up to determine the taxable base (interest income received on rouble deposits with an interest rate not exceeding 1% and on escrow accounts should not be included). Any excess of the total amount of interest income received over the non-taxable threshold (calculated as RUB 1 million x key rate of the Russian Central Bank as of 1 January of the respective calendar year (4.25% for 2021) is subject to tax at a 13% tax rate if the taxable annual income is not exceeding RUB 5 million, and at a 15% tax rate if the annual income is above RUB 5 million (irrespective of the tax status of the individual in Russia). The above rule shall be applied to both residents and non-residents.
Interest income received by Russian tax residents from foreign banks is taxable in Russia irrespective of the level of the interest rate.
Gross rental income from leasing property, both in Russia and abroad, is included in taxable income.
Royalties from the creation, publication, performance, and use of works of literature, art, and science, as well as from inventions, discoveries, and industrial prototypes are included in taxable income (subject to deductions).
Controlled foreign company (CFC) income
The CFC rules imply Russian taxation of profits of foreign companies and non-corporate structures (including trusts) controlled by Russian tax residents (controlling parties).
The legislation sets special rules for taxation of income from CFCs. The CFC income is taxed at 13%/15%.
Starting from 2021, taxpayers would be eligible to pay an annual tax of RUB 5 million on all of their CFCs without assessing the income tax for each one. A special notification should be filed in order to apply this fixed taxation. The election should be consistently applied for three or five years, depending on certain conditions.
In addition to the exemptions mentioned above, the following income is not taxable to an individual:
- Reimbursement by an employer for expenses arising from a work-related change of domicile (in limited circumstances).
- Payments by an employer in compensation for injury or damage to health incurred in the performance of employment duties.
- Severance gratuities payable upon dismissal (within established limits).
- Reimbursements by an employer for business travel expenses (within established limits) if certain documentary requirements are met.
- Income from Russian state pensions. Till 2018, inclusively, the statutory pension age was 60 years for men and 55 years for women. Starting from 1 January 2019, the statutory pension age is 65 years for men and 60 years for women. However, a smooth ten-year transition period was stipulated; the pension age should be enhanced for half a year each year during this period. Many groups of employees have a right for early retirement, which is usually five or ten years earlier than the standard retirement age.