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<P align="center"><font color="#660000"><b><font face="Arial, Helvetica, sans-serif" size="4" color="#990000">Frequent
Legal Issues for Contractors on <br>
Sakhalin Oil and Gas Projects<br>
</font></b></font><font size="2" face="Arial, Helvetica, sans-serif">(Appearing soon in the Russian Energy Law Journal)</font></p>
<p align="center"><font color="#990033" size="2" face="Arial, Helvetica, sans-serif"><strong>XII.
Personal Income Tax Considerations </strong></font></p>
<p align="left"><font size="2" face="Arial, Helvetica, sans-serif"><em>Presented
by <a href="../subpage/attorneys.html#rpg_vlad">Natalia Prisekina</a>, senior associate attorney and Director of the
Vladivostok branch office of Russin & Vecchi</em>.</font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Taxation of expatriate
employees in Russia is regulated by Russian legislation. However, if
the expatriate’s
country of residence has a double taxation treaty with Russia, the
provisions of the double taxation treaty
should prevail.</font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">The following physical
persons (Russian citizens, foreign citizens and persons without citizenship)
are considered taxpayers of personal income
tax pursuant to Russian tax legislation<font size="1"> (138) </font>: </font></p>
<ul>
<li><font size="2" face="Arial, Helvetica, sans-serif"> residents of
the RF for tax purposes: defined as physical persons who spend more
than
183 days within the territory of the RF within a
calendar year <font size="1"> (139)</font>, and</font></li>
<li><font size="2" face="Arial, Helvetica, sans-serif"> non-residents of the RF for tax purposes: defined as physical persons
who spend less than 183 days in the territory of the RF within a calendar
year, who receive income from sources in the RF</font></li>
</ul> <p><font size="2" face="Arial, Helvetica, sans-serif">The tax rate for residents is 13% on income received both from sources
in and outside the RF. The tax rate for non-residents is 30% on income
received from sources in the RF. The object of taxation for non-residents
is only income received from sources in the RF. </font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Income received from
sources within the RF includes remuneration for the performance of
labor or other obligations, work performed, service
rendered and the performance of activity in the RF, as well as dividends
and interest received from a Russian legal entity by both residents and
non-residents. <font size="1"> (140)</font> Remuneration of directors
of an organization, which is a Russian tax resident located in RF, is
considered income received from
sources in RF, irrespective of the place where management functions were
performed and payment was made. <font size="1"> (141)</font></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Income received in the form of dividends is taxed at the rate of 6%
for both Russian tax residents and non-residents. </font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Taxes are calculated in rubles; hard currency payments are converted
at the RF Central Bank rate on the day received. The tax period for personal
income tax is one calendar year.</font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">If, in accordance with the labor contract concluded between an expatriate
and his/her employer abroad, the employer is obligated to make personal
income tax payments for the expatriate, these amounts should be included
in the expatriate's taxable income.</font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">A branch office of
a foreign legal entity accredited in Russia is considered a tax withholding
agent
for the purpose of payment of personal income
tax on behalf of expatriate employee taxpayers of this tax, and, as a
result, is obligated to calculate, withhold and pay personal income tax
from remuneration and dividends (if any) received by expatriates from
a branch office, or as a result of their relations with a branch office
<font size="1"> (142)</font>. A branch office must withhold expatriates’ Russian
personal income tax from their income at the moment of its actual payment
to
expatriates.
A Russian branch office, as a tax-withholding agent, must provide expatriates’ income
data to the tax body at the place of its registration in Russia. <font size="1"> (143)</font></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Taxpayers who must
file personal income tax declarations are listed in Articles 227 -
229 of the RF Tax Code, and include private entrepreneurs,
notaries, as well as tax resident individuals who receive income from
sources outside of the Russian Federation or other individuals who receive
other income from which tax was not withheld by tax agents. Expatriates
who are Russian tax residents and who receive salary and other compensation
for work and/or services performed in the Russian Federation <font size="1"> (144)</font> are
considered as having income from sources in the Russian Federation and
the branch
or representative office through which they are employed must withhold
personal income tax from their salaries. <font size="1"> (145)</font></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Individuals, who
are not required by law to file personal income tax declarations, have
the right to
file them with the tax authority at the
place of the individual’s residence (for foreigners at the place
of their registration in the RF). <font size="1"> (146)</font></font></p>
<p><font size="2" face="Arial, Helvetica, sans-serif">Foreign citizens
with a right to tax benefits in accordance with a treaty on avoidance
of double taxation should file confirming documents with
the Russian tax bodies including: proof of residence in the foreign country,
a document confirming income received and tax paid in the foreign country,
verified by the foreign tax body <font size="1"> (147)</font>. A Russian
branch office may file the necessary documents on behalf of expatriates,
as it will act as a tax-withholding
agent. </font><br>
<font size="2" face="Arial, Helvetica, sans-serif"><br>
</font> <font size="2" face="Arial, Helvetica, sans-serif"><font size="1"> (138)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">RF
Tax Code, Article 207. In accordance with Article 2, Item 1 of the Law
on the Legal Status of Foreign Citizens in the Russian Federation,
a foreign citizen is defined as a physical person, who is not a citizen
of the RF and has proof of citizenship of a foreign country. <br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1"> (139)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Methodical
Recommendations, approved by Order No. BG-3-08/415 of the Ministry of Taxes and
Levies of the Russian Federation, November 29, 2000, last amended
on March 5, 2001, Article 3.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1"> (140)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">Article
208, Item 1 (Sub-Items 1 and 6) of the RF Tax Code.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1"> (141)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">RF
Tax Code, Article 208, Item 1.6.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1"> (142)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">RF
Tax Code, Articles 214 and 226.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1"> (143)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">The
specific accounting forms for tax withholding agents are attached to Order No.
BG-3-08/379 of the RF Tax Ministry. <br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1"> (144)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">RF
Tax Code, Article 208, Item 1.6.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1"> (145)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">RF
Tax Code, Article 226.<br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1"> (146)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">RF
Tax Code, Article 229, Item 2; Order of RF Ministry on Taxes and Levies No. BG-3-08/415.
Specific procedures for filing personal income tax declarations
by physical persons are detailed in the Instruction On Filling In Physical Persons'
Tax Declaration (attached to Order No. BG-3-04/592 of the RF Ministry on Taxes
and Levies); RF Tax Code, Article 229; and Methodical Recommendation on Application
of Chapter 23 of the RF Tax Code (attached to Order No. BG-3-08/415 of the RF
Ministry on Taxes and Levies). The forms of declarations are attached to Order
No. BG-3-04/592 above (for physical person/non-residents the form of declaration
is: 4-NDFL, and expatriate/residents of the RF, the form of declaration is: 3-NDFL). <br>
</font><font size="2" face="Arial, Helvetica, sans-serif"><font size="1"> (147)</font></font> <font size="1" face="Arial, Helvetica, sans-serif">RF
Tax Code, Article 232, Item 2.</font><br>
</p>
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<td width="29%"><div align="center"><strong><font size="2" face="Arial, Helvetica, sans-serif"><a href="chapter_XIII.html">Next</a></font></strong></div></td>
<td width="36%"><div align="center"><strong><font size="2" face="Arial, Helvetica, sans-serif"><a href="chapter_XI.html">Previous</a></font></strong></div></td>
<td width="35%"><div align="center"><strong><font size="2" face="Arial, Helvetica, sans-serif"><a href="RusEnergyLaw_index.html">Table of Contents</a></font></strong></div></td>
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