Federal Law No. 372-FZ of 23 November 2020 amends the current legislation of the Russian Federation on taxation of individuals. Thus, from 1 January 2021 a progressive personal income tax rate is introduced.
The following tax brackets are set:
- if the amount of tax bases for the tax period is equal to or less than RUB 5m, the tax rate is 13%;
- if the amount of tax bases for the tax period exceeds RUB 5m, the tax payable is RUB 650,000 (which equals to 13% of RUB 5m) plus 15% of the income exceeding RUB 5m.
A detailed division of tax bases is introduced to allow a correct application of tax deductions. The procedure for applying tax deductions is not changed.
Taxation of Russian tax residents
The set of tax bases for personal income tax for tax residents of the Russian Federation will be formed from the following list of income types:
- tax base on income from equity participation (including income in the form of dividends paid to foreign organizations on shares of a Russian organization considered as income by a taxpayer in the tax return);
- tax base on income in the form of winnings received by participants in gambling and lotteries;
- tax base on income from operations with securities and operations with derivative financial instruments;
- tax base on repo transactions if securities are the objects;
- tax base on securities lending operations;
- tax base on income received by participants in an investment partnership;
- tax base on securities operations and on operations with derivative financial instruments recorded on an individual investment account;
- tax base on income from profits of a controlled foreign company (including fixed income of a CFC);
- other income that is taxed at the 13% rate (the main tax base).
The progressive scale of tax rates shall be applied to all incomes of individuals - tax residents of the Russian Federation.
The following income types in any amount will be still taxed at 13%:
- sale of any personal property (except for securities);
- property received as a gift (except for securities);
- insurance payments under insurance contracts and pension payments.
Special tax rates will also be retained:
- winnings and prizes got in contests, games and other events for the purpose of advertising goods, works and services are taxed at 35%;
- interest on mortgage-backed bonds is taxed at 9%;
- income on securities of Russian organizations that is paid to foreign organizations acting in the interests of third parties - the tax rate is 30%.
Taxation of Russian tax non-residents
All income types of non-residents of the Russian Federation are taxed at 30%, except for the following income:
- earned by foreign citizens from work activities on the basis of a patent;
- earned by highly qualified foreign specialists (HQS);
- earned by participants in the Programme for Facilitating the Voluntary Relocation of Compatriots to the Russian Federation;
- earned by crew members of ships that sail under the Russian flag;
- earned by refugees and persons granted temporary asylum in the Russian Federation.
The income of these categories of tax non-residents is taxed at the progressive tax rate. The same rates will be applied to interest income earned by tax non-residents on deposits in Russian banks.
The Law provides a two-year transition period (2021 and 2022), that allows tax agents to calculate personal income at a new progressive tax rate for each base separately. If the tax agent withholds lesser amount of tax payable (according to the progressive tax rate), the taxpayer (individual) should pay the shortfall based on a tax notification issued by the Tax Authorities (no later than December 1 of the year following the reporting period).
Taxation of income from sale of shares
Federal Law No. 374-FZ of 23 November 2020 amends the Russian Tax Code (RTC) providing for new conditions for exemption from personal income tax of sale of shares owned by the taxpayer for more than five years.
According to clause 17.2 Article 217 of the RTC (non-taxable incomes) "incomes received from the sale (redemption) of shares in the authorized capital of Russian companies, and the shares referred in p. 2 Article 284.2 of the RTC, provided that on the date of sale (redemption) of such shares (capital participation) they have been in the ownership of the taxpayer continuously for over five years" are released from taxation. It should be noted that the Law makes changes not in Article 217 of the RTC, but in Article 284.2 of the RTC.
According to the new amendments, the exemption applies to the income from sale of shares (participation in authorized capital) not only of Russian, but also of foreign organizations. This exemption does not apply, if the state of permanent location of the foreign organization is included in the list of states and territories that provide preferential tax treatment and (or) do not disclose and provide information on financial transactions (offshore zones) approved by the Ministry of Finance of the Russian Federation.
This exemption is granted in case the sold shares constitute the authorized capital of organizations, whose assets directly or indirectly consist of not more than 50% of real property located in the Russian Federation (according to financial statements as of the last day of the month preceding the month of sale). Thus, the taxpayer should provide financial statements of the organization on the last day of the month preceding the sale. An exception is made only for listed shares of Russian companies belonging to the high-tech (innovative) economic sector.
Also, the change of tax residency / redomiciliation / reorganization of the taxpayer / organization does not interrupt the holding period of shares of such organizations.
In all other cases of sale of shares (participation), the general rule of calculating the tax base "income less expenses" is applied (clause 3.1 of Article 210 of the RTC (as amended by Federal Law No. 372-FZ of 23 November 2020) and clause 10 of Article 214.1 of the RTC). Therefore, individual’s income from sale of shares is taxed at the progressive tax rate.
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