Russian tax authority toughen up tax residency rules for individuals

Federal Tax Service letter of January 16, 2015 No. ОА-3-17/87:
Tax authority has reminded that Russian tax residency rules for individuals are not all that simple. This reminder follows the enactment of CFC legislation, providing for necessity for Russian residents to declare their offshore properties and to pay up taxes on non-distributed profits of off-shore vehicles.

Under the Tax Code, tax resident is deemed to be the person residing in Russia for 183 days out of 12 consecutive months. This definition allows Russian high net worth individuals spending part of the year abroad just to extend their stay, thus falling out of CFC rules’ scope.

At the same time, many of Double Taxation Treaties of Russia contain more sophisticated definition of tax residency and refer to the factors of permanent home, center of vital interest and habitual abode. The letter states that even a person spends less than 183 days in Russia, he still may still be considered a Russian tax resident based on centre of vital interests test. In other words, the mere 183 days factor is not decisive in determining Russian tax residency status.