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The Ministry of Finance decided to change the approach to the definition of tax residency

The Ministry of Finance submitted to the state Duma the draft "Main directions of budget, tax and customs tariff policy for 2020 and the planning period of 2021 and 2022".

In particular, this document has plans for the next 3 years to expand the criteria for recognition of citizens as tax residents.

Now, to lose the status of a tax resident of the Russian Federation, it is enough to spend less than 183 days a year in the country. In particular, tax non-residents are not required to report on CFC and pay taxes on their retained earnings. Also, the Russian authorities do not learn about the assets of tax non-residents of the Russian Federation within the automatic exchange.

What is planned:

  • halve the minimum period of stay in Russia to 90 days per year — if a person has spent more than three months in Russia, he will automatically be considered a tax resident;
  • but even if a citizen was in Russia for less than 90 days, he will still be considered a tax resident in the presence of real estate, economic and personal ties in Russia.

This is a common world practice, and it is successfully used by many developed countries. It is believed that the criterion of only the number of days spent in the country without taking into account the center of vital interests is outdated and easily dispensed with.

The tightening of the rules is likely to lead to an increase in disputes with other jurisdictions over obtaining a pre - emptive right to taxation. Cases when Russia along with other country or even several countries will claim taxes of the citizen will become frequent.

At the same time with the tightening of conditions for the recognition of tax residency, the Ministry of Finance proposes to equalize the personal income tax rate for tax residents and non-residents. It is proposed to set the personal income tax rate for non-residents at 13%. Now the personal income tax rate for tax non-residents of the Russian Federation is 30%.