Double taxation treaties

A citizen who lives in Russia for more than 183 days during the year is required to pay taxes on income, regardless of the country he receives it. Owners of real estate abroad that they rent or sell often face double taxation.

Russia’s double taxation with many countries is regulated by bilateral agreements, making taxpayers' lives much easier.

What does double taxation mean?

Double taxation refers to the mandatory payment of income taxes in different countries. This usually applies to those who are citizens of one country but receive income in another. To optimize the process and reduce the considerable costs of paying fees, the government of the Russian Federation signs agreements with other states. This helps to avoid double taxes.

Reasons for double taxation

  • Citizenship and source of income in different countries. A person lives in one country and makes a profit in another. In this case, both states claim the taxpayer’s income. In such situations, one of the two countries should exempt a person from paying taxes. If this does not happen, double taxation takes effect.
  • A person has a residency in several countries at once. A resident is a citizen who lives in their home state or for a long period in another. For example, foreigners who live on the Russian Federation’s territory for more than 183 days acquire the status of a resident. If there aren’t any agreements between the countries to avoid double taxation, the resident will pay the tax fee both at home and in the country where he makes a profit.
  • «Triangular» conflicts often arise for legal entities when the representative office is located in one country, branches — in another, and income is received in the third one. In the absence of a Treaty to avoid double charges, all three states will require the payment of taxes.

According to interstate agreements, norms for paying taxes on the profits of individuals and legal entities whose income assets are located outside their country of citizenship are established. These international agreements allow certain types of financial transactions to be exempt from taxation in one of the two countries. Or taxes are paid but on preferential terms. This helps taxpayers to reduce expenses, optimize transactions, and develop relations with foreign countries.

Russia has signed 83 double taxation treaties with other countries.

Russian residents who get the profit from assets in countries with which the issue of double taxation is not settled are required to pay the same tax to both countries.

According to the terms of an interstate agreement, the application of preferential taxation is possible only if certain conditions are met. It is necessary to confirm that the Russian taxpayer has got a foreign partner, and the last pays the Russian taxpayer a profit. You should also confirm that the partner is located abroad. The foreign partner must document that it makes a profit and is located on the territory of the state with which Russia has signed an agreement on the abolition of double tax payments. The papers should be translated into Russian and submitted before the profit is paid. If they are presented later, the tax will have to be paid in accordance with the terms of the internal Tax Code. Later, the fee can be refunded.

To avoid double taxation, a foreign partner must provide:

  • proof of permanent residence in a foreign country;
  • Translation of the document into Russian is required. Confirmation of the foreign partner’s right to receive income.

If a person rents an object abroad and receives income from it, they must declare this fact in the Russian Federation, using the standard form of PIT Declaration.

If a resident of the Russian Federation has a profit from renting out an object that is located abroad, then all tax paid there is deducted from the amount of the fee in the Russian Federation. Income tax for Russian residents is 13%. If the amount of tax paid in a foreign country is less than the one calculated in the Russian Federation, you must pay the difference.

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