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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, it’s vital that you 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 take advantage of some great tax obligation reduction programs to lower your liability and save thousands in double taxation.
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 engages in citizen-based taxation. As the name suggests, citizen-based taxation involves taxing all US residents, regardless of where they currently reside.
In order 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 sets of returns simultaneously.
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 require 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 a rate of 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
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 a separate set of 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:
If you meet any of these criteria, you can reduce your Russian income tax liability using FEIE and other programs.
The main thing you need to remember is 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.
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, you must claim all other relevant income sources when filing your annual return. Remember, Russian tax residents have to 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:
While living in Russia, you’ll also have to 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.
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.
There is no Russia-US totalization agreement in place. A totalization agreement is designed to prevent double taxation in regard to Social Security taxes. However, double Social Security taxation isn’t a major concern, as individual employees typically don’t pay into Social Security.
However, there are a few rare exceptions to this rule, so you should consult with a tax professional if you have any concerns about your Social Security tax liability.
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.
In terms of US tax forms, you’ll have to file a 1040 form at a minimum. You may also need to complete other documents to declare certain types of income or financial interests, as well as forms for claiming exemptions such as an FEIE.
While this guide can certainly help you understand Russian taxes for US expats, filing two sets of returns can still be complicated. Greenback Expat Tax Services is here to help.