Russia Taxes for US Expats: A Complete Guide
- Living as an Expat in Russia
- Russia at a Glance
- US Expat Taxes in Russia
- Who Has to File Taxes in Russia?
- Who Qualifies as a Tax Resident in Russia?
- What Types of Taxation Does Russia Have?
- What Tax Forms Do Americans Living in Russia Have to File?
- Does the US Have a Tax Treaty with Russia?
- Does Russia Have a Totalization Agreement with the US?
- Navigating Tax Compliance for US Expats in Russia
Living as an Expat in Russia
Although Russia and the United States have frequently fallen on the opposite side of key geopolitical issues, the nation remains a popular destination for expats, primarily due to its rich culture and reasonable cost of living. If you’re one of the thousands of American Citizens that have sought solitude in this sprawling, history-rich country, you must know how to manage Russian taxes for US expats.
Knowing precisely what income tax rate Russia charges expats can be confusing enough on its own. On top of that, you’ll also need to determine what US tax obligations Americans working in Russia must fulfill to remain in good standing with the Internal Revenue Service.
That’s right — even though you reside in Russia, you’ll still owe US taxes. Fortunately, you can use some great tax obligation reduction programs to lower your liability and save thousands in double taxation.
Russia at a Glance
- Primary Tax Form for Residents: Form 3-NDFL
- Tax Year: January 1 to December 31.
- Tax Deadline: April 30th of the following year
- Currency: Russian Ruble (RUB).
- Population: As of 2021, Estimated 146 million
- Number of US Expats: Estimated to be around 5,000
- Capital City: Moscow
- Primary Language: Russian
- Tax Treaty: Yes
- Totalization Agreement: No
US Expat Taxes in Russia
US expats living in Russia must file taxes with both the Russian and United States governments.
That’s because Russia engages in residency-based taxation, whereas the United States participates in citizen-based taxation. As the name suggests, citizen-based taxation involves taxing all US residents, regardless of where they currently reside.
To successfully navigate both sets of tax laws, you’ll need to familiarize yourself with the tax rate for foreigners in Russia, as well as US programs designed to reduce your liability.
For the most part, your Russian taxes will automatically be deducted from your paycheck. However, much like in the United States, there’s a possibility that either too much or too little could be deducted. Therefore, you must still file a Russian tax return to verify that you paid the appropriate amount during a given tax year.
Both the US and Russian tax year runs from January 1st to December 31st. Likewise, both nations have deadlines that fall in mid to late April. Fortunately, that means you’ll be able to prepare both returns simultaneously.
Who Has to File Taxes in Russia?
Russian citizens and non-citizen residents have to pay Russian income taxes.
Both groups are subject to the same income tax scale, which is very simple. As a Russian resident, you’ll be required to pay an income tax rate of 13% on the first five million rubles of income generated from work performed in the country; all earnings above five million rubles are taxed at a rate of 15%.
Russia requires you to pay taxes on income generated outside of Russia if you’re a “tax resident.” This is unique, as most nations only need citizens to pay taxes on all global income.
If you haven’t yet achieved residency status, all of your Russian-sourced income will be taxed at 30%. You won’t have to pay taxes on non-Russian sourced income.
The tax filing deadline in Russia is April 30th. Failing to file by this deadline or request an extension can result in penalties if you owe outstanding income taxes.
If most of your income is generated outside of Russia, it may be beneficial to pay the higher non-resident tax rate on your Russian-sourced income instead of a 15% tax rate on all of your worldwide earnings
Who Qualifies as a Tax Resident in Russia?
Russia uses a straightforward rule to determine tax residency status. If you spend more than 182 days in Russia during a tax year, you’ll be considered a resident for tax purposes.
The United States uses separate rules to determine whether Russia has become your “tax home.” You must meet these requirements to take advantage of programs like the Foreign Earned Income Exclusion.
Generally, you must meet one of the following criteria to establish Russia as your tax home:
- You’re a US citizen that’s classified as a “bona fide” resident within a foreign country for one entire tax year
- You’ve been physically present within a foreign nation for at least 330 full days within any consecutive 12 months
- You’re a US resident alien and a citizen of a country that the US has an income tax treaty with
If you meet these criteria, you can reduce your Russian income tax liability using FEIE and other programs.
You need to remember that if you establish Russia as your tax home under IRS guidelines and meet the country’s residency requirements, you can minimize your tax liability both there and in the US.
When you live in the US, tax day is simple: April 15th! When you move abroad, it’s not so straightforward! Learn about all the expat deadlines and extensions you need to know to file.
What Types of Taxation Does Russia Have?
The primary form of tax that US expats living in Russia will pay is an income tax.
Income taxes are typically deducted directly from your paycheck. However, filing your annual return requires you to claim all other relevant income sources. Remember, Russian tax residents must pay taxes on all worldwide income, not just Russian-sourced income.
A few examples of individuals that have to pay Russian income taxes include the following:
- Freelancers that work in Russia
- Lawyers and notaries
- Individuals selling private property, including land, homes, or vehicles
- Tax residents that have won money from lotteries or gambling activities
- Non-residents and residents that earn income from intellectual property
- Individuals that receive an inheritance from non-family members
- Landlords that receive remuneration from civil contracts, such as rent paid by tenants
While living in Russia, you must also pay a VAT tax when purchasing certain services or goods. VAT taxes are already calculated in the price of goods or services, so you won’t need to add these fees manually.
The general Russian VAT tax rate is 20%. However, select items like medical supplies, children’s clothing, shoes, and food include a VAT tax of 10%. Public housing, certain medical items, education, and a handful of other necessities aren’t subject to a VAT tax.
What Tax Forms Do Americans Living in Russia Have to File?
When filing your Russian taxes, you must complete a Tax Declaration form by April 30th. This form is relatively straightforward. Russia offers few tax exemptions for expats that have achieved residency status and virtually none for non-residents.
As an expat living in Russia, there are certain US tax forms that you must be aware of to comply with the tax laws in both countries. Here are some necessary tax forms you need to know about:
- Form 1040: This is the main US tax form for individuals. As a US citizen or green card holder, you must file this form every year regardless of where you live in the world. You must report your worldwide income, including income earned in Russia.
- Form 2555 is used to claim the Foreign Earned Income Exclusion (FEIE). As a US expat in Russia, you may be eligible for this exclusion if you meet certain criteria. This exclusion allows you to exclude up to a certain amount of your foreign-earned income from US taxes.
- FinCEN Form 114: If you have financial accounts in Russia with an aggregate value of $10,000 or more, you must file this form with the US Treasury Department. This is known as the Foreign Bank Account Report (FBAR).
- Form 8938 reports foreign financial assets if their value exceeds certain thresholds. You must file this form with your US tax return if you have foreign assets worth more than $200,000.
Filing these tax forms can be complex and time-consuming, especially if you are unfamiliar with the US tax system.
Does the US Have a Tax Treaty with Russia?
Yes, there is a Russia-US tax treaty in place. The Russia-US tax treaty is designed to protect expats from double taxation while preventing various forms of tax evasion.
The Russian government also works to prevent tax evasion using the Automatic Exchange of Information (AEOI) system.
The AEOI allows Russia’s tax organization to obtain information about bank accounts held by Russian residency permit holders or Russian citizens. The United States and more than 100 other nations also participate in this program.
Make sure you accurately report all relevant financial data about each of your accounts worldwide. Doing so will prevent reporting discrepancies and help you avoid fines or other penalties.
Does Russia Have a Totalization Agreement with the US?
There is no Russia-US totalization agreement in place. A totalization agreement is designed to prevent double taxation regarding Social Security taxes. However, double Social Security taxation isn’t a significant concern, as individual employees typically don’t pay into Social Security.
However, this rule has a few rare exceptions, so you should consult with a tax professional service like Greenback if you have any concerns about your Social Security tax liability.
Navigating Tax Compliance for US Expats in Russia
Although this guide can undoubtedly enhance your comprehension of Russian taxes for US expats, filing two sets of tax returns can still present some complications. Fortunately, Greenback Expat Tax Services is here to assist with your US expat taxes.
If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.