Declaring Personal Income Tax In The Russian Federation
According to Articles 227 and 228 of the Tax Code of the Russian Federation the following categories of individuals must file income tax declarations:
- Registered individuals who conduct business without forming a separate legal entity must declare the income earned from that business activity;
- Notaries and lawyers in private practice must declare income received for these professional activities.
- Individuals who have received remuneration through civil contracts with other individuals who are not tax agents must declare that income. This includes income from contracts for rental or leasing agreements;
- Individuals who have received sums for the sale of their own private property must declare that income;
- Individuals who are tax residents of the Russian Federation, but who received income from sources outside Russia, must file taxes on that income.
- Individuals who have received income without a tax agent (such as an employer) withholding appropriate taxes (i.e. if the payment was made in kind and the individual did not receive any cash payments in the given tax period). They must declare the value of this income.
- Individuals who have received lottery winnings, or winnings from any other “games of chance” (such as gambling). They must declare any such sums, no matter how large or small.
- Individuals who have earned incomes from their ownership of intellectual property rights (whether in science, art, literature, discoveries, or inventions) must declare that income.
- Individual who have received gifts from private individuals who are not family members (in accordance with the Family Code of the Russian Federation, Point 18.1 of Article 217).
Taxpayers who meet the preceding requirements must file their declarations for the preceding tax period at their local tax office (according to where they are registered).
Personal income taxpayers are divided into two categories: tax residents and non tax residents.
According to paragraph 2 of Article 207 of the TC, a tax resident is anyone who had spent no less than 183 days over the course of the 12 consecutive months inside Russia.
Tax residents must pay 13 percent tax, except for money, goods, and/or services received as winnings or prizes in games, contests, and “other events conducted for advertising purposes” whose total value exceeds 4000 rubles – these amounts are taxed at 35%.
Non tax residents pay 30 percent tax on income received from sources within RF (Points 1 and 3 of Article 224 TC).
Since the tax period for yearly income tax declaration ends Jan 1st, this means that personal income taxes will still effectively be figured for the calendar year preceding the year in which the tax declaration is filed.
A new version of the Personal Income Tax Form for Individuals (N 3-NDFL) was introduced by the Decree of the Federal Tax Service # MMB-7-11/822@ from October 25, 2017.. Declarations filled out on paper can be submitted by the taxpayer to the tax office personally or by a legally authorized representative, sent by mail with a list of the contents, or sent electronically. Declarations for the calendar year must be submitted not later than April 30th of the following year.
Along with declaration sent to the Tax Inspectorate, documents should be attached that confirm both the information entered into it as well as the appropriate power of the representative filing the document. It is possible to compile a register of supporting documents.
According to Article 229, paragraph 1 of the TC, voluntarily filing of tax declaration is not limited by time frame. However, taxes paid in excess will only be refunded within three years (Article 78 paragraph 7 of the TC). It means that declaration claiming tax deductions and tax refund must be filed within three years from the date of tax payment.
Tax declarations may be filed voluntarily for the purpose of receiving certain tax deductions:
- Standard tax deductions for taxpayer and child-dependants (in cases when deductions were not provided during the given tax period or which were provided in lesser amounts than those stated in Article 218 of the TC). Deductions may be applied only until income accrued since the beginning of the tax period becomes greater than 350,000 rubles. After this time, deductions may not be claimed.
- Social tax deductions. Individuals may deduct for items listed in Article 219 of the TC. These include:
- for charity – in the amount actually incurred, but not more than 25% of taxable income for the year;
- for education, medical treatment, voluntary personal insurance, voluntary contributions for pensions (insurance), voluntary life insurance, additional contributions to the funded part of a pension, and taking independent evaluations of professional qualifications, – in the amount actually incurred, but not more than 120,000 rubles per year for all types of expenses;
- for expensive medical treatment – in the amount of expenses incurred without restriction;
- for the education of one’s children (or wards) in the amount of not more than 50,000 rubles for each child (ward). This amount is shared by both parents (guardians, trustees).
- Property tax deductions for the sale or purchase of property or housing for which the taxpayer then bears ownership rights.
Property-related tax deduction for property sales or purchase of property listed with the State Registrar. If the taxpayer has owned the property for over five years, the seller may deduct the full amount received (Article 217.1 of the TC). If property was owned for less than five years, the deduction must not exceed 1,000,000 rubles for the sale of residential property and land, and 250,000 rubles for the sale of other property. If the property-related tax deduction cannot be used fully in a given tax period, the remaining amount may be transferred to following tax periods until it is used in full.
Purchase of residential property (existing housing or plots of land designated for housing construction) is tax deductible up to 2,000,000 rubles.
If targeted loans (loans) were used for the purchase, there may also be a deduction for the interest paid within 3,000,000 rubles. (Point 4 of Article 220 of the TC).
Repeated use of the property-related tax deduction is not allowed.
- Professional tax deduction for income received for work (services) performed on the basis of civil contracts, and also for royalties or awards for the creation, execution or other use of works of science, literature, and art, royalties for discoveries, inventions, and prototypes (Article221 of the TC).
- Investment tax deductions on income in the amount of the positive financial result received from the sale (repayment) of securities, as well as in the amount of income contributed by the taxpayer to an individual investment account (Article 219.1 of the TC).
Deductions only apply to earnings subject to the 13% income tax rate (Article 210 paragraph 3, Article 224 paragraph 1 of the TC). They are not applicable to taxes paid at any other rate.
Income tax must be paid into the budget no later than July 15.
Failure to file a tax declaration can result in a fine to the amount of 5% of the tax owed for each full or partial month the declaration is late is charged. This fine may not total 30% of the total sum of taxes due and may not be less than 1000 rubles.