Tax Residency in the Russian Federation
1. Criteria for Determining Tax Residency under Local Tax Laws
According to Article 207 of the Russian Tax Code, an individual is considered a tax resident of the Russian Federation if they meet either of the following criteria:
- They have a permanent residence in Russia for at least 183 days within a calendar year.
- They are present in Russia for more than 183 days within a calendar year and do not have a permanent residence outside of Russia.
For legal entities, tax residency is determined based on their place of registration. A legal entity is considered a tax resident of Russia if it is registered in accordance with Russian law and has its actual place of management in Russia.
2. Impact of International Tax Treaties on Tax Residency Criteria
Russia has entered into numerous double taxation treaties (DTTs) with other countries. These treaties may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
Key Provisions in Tax Treaties Relating to Tax Residency
DTTs typically include provisions that address the issue of tax residency. These provisions aim to prevent double taxation and ensure that individuals and entities are not subject to taxation in both countries on the same income.
One common provision in DTTs is the "tie-breaker" rule. This rule is used to determine the tax residency of an individual or entity that is considered a resident of both countries under their respective domestic laws. The tie-breaker rule typically considers factors such as the individual's or entity's permanent home, center of vital interests, and habitual abode.
Modifications and Exceptions Introduced by Tax Treaties
DTTs may introduce modifications or exceptions to the standard criteria for tax residency in order to prevent double taxation. For example, some DTTs may provide that an individual who is present in Russia for more than 183 days within a calendar year but has a permanent residence outside of Russia will not be considered a tax resident of Russia.
Rationale and Objectives of Treaty Provisions
The modifications and exceptions introduced by DTTs are intended to provide clarity and prevent double taxation by establishing clear rules for determining tax residency in cases involving cross-border activities. They reflect the mutual agreement between Russia and the other country to facilitate tax compliance and enhance economic cooperation between the two countries.
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