Our last article discussed measures taken by the global community to support people stranded under lockdown due to the pandemic, namely, easing requirements for determining their tax status.

Back in April, the relevant clarifications were released by the Organisation for Economic Co-operation and Development (OECD) recognizing the pandemic as force majeure event which should not entail change in the tax status of a person who ended up stranded outside their regular place of residence. The same logic was gradually put into effect in national regulations of a number of states.

Until mid-summer, Russia remained silent on this issue, and government representatives even claimed that no changes were planned in the tax residency regulation.

Under the general rule, a person is deemed a Russian tax resident entitled to apply a personal income tax rate of 13% to their income if they spend at least 183 days in Russia within 12 consecutive months. Accordingly, if during the pandemic a person spent abroad more than six months without the opportunity to return to Russia, they would automatically become a tax non-resident with the rate of 30% instead of 13% applying to their income from sources in Russia. These consequences are quite substantial and, of course, many people expected Russian authorities to respond somehow in support of taxpayers.

The authorities responded at the end of July and the relevant amendments were eventually introduced into the Russian Tax Code.[1] What did Russia propose?

• If a person spent in Russia from 90 to 182 days (inclusive) during 2020, they could be recognized as Russian tax residents;
• This does not mean automatic recognition as a tax resident, since it requires your expressed will and intention to be recognized as a Russian tax resident;
• Namely, a person must file an application in any form to the tax authority at the place of residence/stay;
• The only requirement for the application is that your full name and Tax ID (INN) must be indicated in it;
• Such application needs to be filed on or before April 30, 2021.

These amendments are implemented through adding just one additional paragraph to the article of the Russian Tax Code regulating tax residency. There are no instructions or explanations from the Russian Ministry of Finance or Federal Tax Service, which would detail how to apply these new provisions.

What conclusions can be drawn from these new provisions?

First, the option of being recognized as a resident when staying in Russia for at least 90 days is valid only for 2020. This means that in 2021 the previous 183-day rules will apply (unless new amendments are adopted). Therefore, we can say that this is a short-term measure brought on by COVID-19 circumstances.

Second, this raises some concerns over law enforcement agencies keeping silent and the absence of instructions giving clear powers to tax authorities which will receive such applications for recognition as a resident.

When we proceed from the assumption that this measure is temporary and was forced by the pandemic, can we be sure that it will apply to everyone who wants to be a resident? Or should we assume that it is intended only for those who were stranded abroad due to COVID-19 and could not return home in time?

Will the local inspector examine whether Mr. Petrov, who applied for recognition as a resident, had the opportunity to return to Russia and stay here for the required six months?

In this regard, we should mention the comments from the Russian Minister of Finance Siluanov on the adopted amendments. He noted that they were intended to maintain the same conditions of income taxation for those citizens who were unable to return to Russia for objective reasons (from a business trip, vacation, study, or medical treatment). The right to apply for recognition as a resident means that conditions for individuals cannot deteriorate due to today’s COVID-19 situation.[2]

Therefore, apparently, the new rules are aimed at keeping the same conditions for those who were unable to return. Even though neither the text of the law, nor any explanations from regulatory authorities imply this, and based on the literal meaning these rules seem to apply to everyone.

That is why we recommend the following to those who are thinking of taking advantage of this new procedure:

• Monitoring for clarifications from regulatory authorities on this issue and the practice of applying this article;
• In any case and if possible, having confirmation of the forced stay abroad and intention to return to Russia (canceled air tickets, messages from airlines, correspondence about canceling meetings in Russia, etc.);
• Filing such an application only if you believe that this option is harmless in your specific situation.