Taxes and Residency: How Tax Payments in the Russian Federation is Regulated in the Presence of Residence Permit/Second Citizenship

Questions about taxes, favorable tax regimes, and tax residency are common among clients of the licensed agency GARANT.in. Since one of our company's main services is assisting with obtaining residence permits and citizenship in other countries, it is not surprising that future residents are often concerned with one critical question: How will I pay taxes after acquiring a new status?

Are two citizenships double taxes? Let’s clarify this crucial point right away—double taxation is generally not legal, and no one can force a resident to pay the same tax in two countries simultaneously. While there are nuances to consider, we aim to address these in this new material.

Citizenship vs. Tax Residency: How Are They Related?

In most cases, a person resides in the country where they hold citizenship and fulfills their tax obligations there. However, when someone has two passports or holds a passport from one country and residency in another (residence permit or permanent residence permit), determining tax residency becomes less straightforward.

Citizenship
To establish citizenship, an individual must possess one or more passports. Each country has its own stance on dual citizenship:

• The Russian Federation permits it.
• Kazakhstan and the People's Republic of China prohibit their citizens from acquiring a second citizenship.
• Belarus recognizes only one citizenship but allows its citizens to hold multiple passports.

A citizen is generally required to pay taxes only in the country where they are registered and recognized as a tax resident.

Tax Residency
To be classified as a tax resident, a person must spend at least 183 days per year in a particular country. If you stay in a chosen state for more than 183 days, you automatically become a tax resident there, regardless of your citizenship.

Exceptions
France offers an exception for residents who obtain a residence permit based on financial independence. In this case, the resident decides whether to become a tax resident of France, regardless of how much time they spend in the country.

Dual Citizenship and Double Taxation

Agreements between many countries prevent double taxation. Having two or more passports does not mean you must contribute to the budget of every country of which you are a citizen. It’s essential to:

1. Choose a country with the most favorable tax climate.
2. Apply for tax residency in that country.
3. Notify the Russian tax authorities about your new tax residency.
4. Provide evidence that you are no longer a Russian tax resident and thus are not obligated to pay taxes in Russia.

Since January 1, 2018, Russia has been a member of the Common Reporting Standard (CRS), an international tax information exchange system. This system allows for streamlined information sharing between member states, simplifying tax compliance for individuals and authorities alike.

Taxation Challenges for Russian Citizens with Dual Citizenship

Recently, the State Duma introduced a bill proposing that taxpayers holding a second passport from a country deemed “unfriendly” to the Russian Federation would be subject to double tax rates unless they renounce their second citizenship.

Additionally, foreign citizens who acquire Russian passports must renounce their original citizenship within six months to avoid double taxation.

Critics have labeled this proposal as discriminatory against Russian citizens with dual or multiple passports. The bill is currently under revision. Its authors argue that the measure aligns with international agreements but may conflict with certain treaties, such as the dual citizenship agreement with Tajikistan.

According to the authors, the adoption of the proposed bill will “minimize the number of citizens with stable political and legal ties to foreign countries that negatively affect the social and political order in the Russian Federation”. The bill is currently under consideration, but one should be prepared for any turn of events.

Taxation in the Russian Federation of citizens with two passports or a passport and residency - the main theses

Of course, it is difficult to describe any general algorithm that would suit two people with several passports. Each resident has a different history and many related factors - someone is employed in the Russian Federation, another in the country of second citizenship, someone lives permanently in the Russian Federation, another in the chosen country, someone has real estate in the Russian Federation, another person has both. Based on these factors, the tax base will be calculated. Each of these candidates will pay taxes differently: different tax liabilities, different amounts, and even in different countries. 

We have collected various theses that all those who have two citizenships or citizenship+residency on their hands need to know:

1. A tax non-resident is a person who spent less than 183 days on the territory of Russia during the 12 months following in succession. At the same time, the person may be a citizen of the Russian Federation, but not a tax resident. The status is fixed as of December 31 and is no longer adjusted for that year.
2. Resident/non-resident status will not depend on citizenship, including holding multiple passports.
3. The “tax resident” status is important only for personal income tax and for notifying the tax inspectorate about opening a company abroad. Personal property, land, and transportation taxes are levied in the same manner as for residents. 
4. Are a tax resident and a currency resident the same thing? No! All Russian citizens are currency residents, no matter what country they are in. However, they must inform the Russian tax authorities about the opening and closing of brokerage accounts or bank accounts only if at the time of the event they have been on the territory of the Russian Federation for more than 183 days in a calendar year.
5. Non-resident tax status does not exempt Russian citizens from the obligation to notify the Russian Ministry of Internal Affairs of the issuance of a second passport or resident status in another country.
6. Legally, a Russian citizen is not required to notify the state that his/her non-resident/resident status has been changed. The tax service does not track every taxpayer but can see indirect signs that a person has changed tax residency - information about a person's foreign accounts.
7. Residents are liable to pay Russian personal income tax on income from the source in Russia and foreign sources. The standard rate is 13% on income up to 5,000,000 ₽ per year and 15% if the amount exceeds this threshold. There is also an opportunity to make a tax deduction: standard, social, property, professional, and others.
8. Non-residents pay personal income tax on income received from sources in the Russian Federation at the rate of 30%. Non-residents cannot count on deductions.
9. Non-resident income from the lease of property located in the Russian Federation is taxable at the rate of 30%. You will have to file reports on your own. This can be avoided if the object is leased out by a trusted person who is a resident of Russia.
10. If a non-resident conceals his status from the inspection authorities, he will pay personal income tax according to the rules for residents and also risks losing a large sum when paying a fine. 40% of the amount will be charged for willful non-payment and 30% for non-transmitted declarations. 

It is not always possible to deal with taxation issues, tax deductions, rates, and other related concepts on your own. It is especially difficult to do this in another country without knowing the specifics of the tax laws of the chosen state. If you are worried about the correctness of reporting, do not know at what rate this or that tax is paid, and in general how to understand the tax legislation of the chosen country, please contact our lawyers for help. We will help you navigate taxation, correct filing of returns, and other related issues.