Amendments to the Russian Law on Individuals
The past year 2014 was not the easiest in the modern Russian history; besides global geopolitical changes, the “wind of change“ did not come by the Russian legislation as well. The changes affected various aspects of life of individuals and brought pleasant surprises expressed in the introduction of investment deductions and permission to get certain types of income to accounts opened with banks located outside the Russian Federation, as well as changes in tax legislation, which resulted in increased tax burden both for ordinary citizens who own real estate, as well as for shareholders who get income in the form of dividends. In addition, the past year brought to the citizens of the Russian Federation, who have the legal right of permanent residence outside the Russian Federation, the obligation to notify the authorities of the federal migration service of the existence of this right.
Pursuant to the Federal Law from 21.12.2013 No. 379-FZ, from 1 January 2015 the chapter 3 of the Federal Law from 22.04.1996 No. 39-FZ “On the Securities Market“ is supplemented by article 10.3, which regulates the opening of individual investment accounts.
The individual investment account is an account of internal accounting designed for separate accounting of funds, securities of the client – individual, the obligations under contracts signed at the expense of the specified client, and which is opened and maintained in accordance with art. 10.3 of the Federal Law “On the Securities Market”. Any professional participant of the securities market will be entitled to sign such a contract. Each client will have the right to open only one such account.
As a means to stimulate opening of such accounts the individual will be entitled to an investment tax deduction on the funds that he/she transferred (in the amount of at most 400 thousand rubles), or on the funds that he/she will receive after closing of the account.
The purpose of introduction of individual investment accounts is to increase the attractiveness of investments in the stock market instruments for private investors by providing tax deductions.
Two types of tax deductions are provided for individual investment account. The taxpayer can choose only one type of deduction. Combining both types of deductions is impossible over the whole term of the contract for maintenance of individual investment account.
The first type of investment deduction: the taxpayer will be able to obtain annually a tax deduction for the personal income tax in the amount of money deposited in the tax period on the individual investment account. (subp. 2 p. 1, art. 219.1 of the RF TC)
The second type of investment deduction: at the end of the contract for maintenance of IIA, after at least three years, the taxpayer can get a deduction for the personal income tax in the amount of income derived from investment account transactions – i.e. all profit will be exempt from tax (subp.3 p. 1 art. 219.1 of the RF TC).
It is important to remember that upon closing the IIA earlier than three years, all amounts of refund of the income tax received from the budget shall be returned to the budget.
There are a number of restrictions on the IIA for individuals:
- The individual may have only one contract for maintenance of IIA. In the case of signing a new contract the earlier signed contract shall be terminated during a month;
- Under the contract for maintenance of IIA the client may transfer to a professional participant of the securities market only funds;
- The total amount of funds that can be transferred during a calendar year under such a contract shall not exceed 400,000 rubles.
In this case, the individual may:
- Demand the return of the funds and securities deposited on the IIA or their transfer to another professional participant of the securities market, with whom a contract for maintenance of IIA is signed;
- Terminate the contract of one type (brokerage services contract or contract of trust management of securities) for maintenance of IIA and sign another type of contract for maintenance of IIA with the same or with another professional participant of the securities market.
In turn, the professional participant of the securities market enters into a contract for maintenance of IIA only on condition that the individual stated in writing that he/she does not have a contract with another professional participant of the securities market for maintenance of individual investment account, or that such contract will be terminated within one month at most.
Upon termination of the contract for maintenance of IIA the professional participant of the securities market shall pass information about individual and his/her IIA to the professional participant of the securities market, with whom a new contract is signed.
The PIT on securities transactions, deposited on the IIA, is calculated, deducted and paid by the tax agent on the date of termination of the contract for maintenance of IIA, except for case of termination of the contract with transfer of all assets deposited on the IIA, to another IIA, opened for the same individual. If the contract is terminated with transfer of all assets deposited on the IIA, to another IIA, opened for the same individual, for the purposes of calculating the tax base the date of opening of the account is the date of opening of the (original) terminated contract.
The tax agent that is a source of income in transactions, deposited on the IIA, will be required to report the opening or closing of the account to the tax authority on its location within three days from the date of the relevant event.
The Federal Law from 10.12.2003 No. 173-FZ “On Currency Regulation and Currency Control” was amended so as to specify the procedure of currency transactions of residents using their accounts opened with banks located outside the Russian Federation.
According to the amendments the accounts of the RF residents opened with banks outside the RF can be credited with the funds:
- Paid as salary and other payments related to the performance by resident individuals outside the Russian Federation of their labor duties under employment contracts with non-residents, as well as paid in the form of payment and reimbursement of costs of their business trips,
- Payable under the decisions of foreign courts, except for the decisions of the international commercial arbitration;
- Payable in the form of pensions, stipends, alimony and other social payments;
- In the form of insurance payments made by non-resident insurers;
- Payable by way of refund of funds paid earlier by resident individuals, including return of the wrongly transferred funds, refund of cash for the goods returned by resident individual to a non-resident earlier bought by him/her from such non-resident, for service paid to such non-resident.
The accounts of residents opened with banks located in member states of the Organization for Economic Cooperation and Development (hereinafter referred to as the OECD) or the Financial Action Task Force on Money Laundering (hereinafter the FATF), can be credited with:
- Amounts of credits and loans in foreign currency obtained under credit agreements and loan agreements with non-resident entities that are agents of foreign governments, as well as under credit agreements and loan agreements concluded with residents of the OECD and FATF member states for a period over two years;
- The amounts of income from the lease (sublease) to non-residents located outside the Russian Federation of real estate and other property of a resident individual;
- Payable by non-residents in the form of grants;
- Payable by non-residents in the form of accrued interest (coupon) income, the payment of which is provided by the terms and conditions of issue of foreign securities, other income on foreign securities (dividends, bonds, bills, payments upon decrease of the authorized capital of issuer of foreign securities) belonging to a resident individual.
However, from 1 January 2015 the individuals-currency residents of the RF are obliged to submit to the tax authorities at the place of their registration statements of cash flows of accounts (deposits) opened with banks outside the Russian Federation with supporting bank documents.
The Federal Law from 04.06.2014 No. 142 -FZ “On Amendments to Articles 6 and 30 of the Federal Law “On Citizenship of the Russian Federation” and some legislative acts of the Russian Federation”, the Russian nationals who are citizens of a foreign country, are required to report it to the Federal Migration Service.
The citizens of the Russian Federation must notify the Federal Migration Service on having:
- A foreign citizenship,
- A residence permit or
- A document authorizing the permanent residence in a foreign country.
The second citizenship can be reported both personally coming to the office of the migration service, as well as by mail. In December 2014 the law was amended so as to allow notification through a proxy acting under a notarized power of attorney.
According to the amendments to the Federal Law from 31.05.2002 No. 62-FZ “On Citizenship of the Russian Federation“, the notice shall contain the following information about the citizen of the Russian Federation in respect of whom it is submitted:
- Surname, name and patronymic.
- Date and place of birth.
- Place of residence (in the absence thereof – the place of stay, and in the absence of residence and place of stay – the actual location).
- Series and number of passport of the citizen of the Russian Federation or other identity document of the relevant citizen in the Russian Federation.
- Name of another existing citizenship, series, number and date of issuance of the passport of a foreign state or other document confirming another citizenship of the said citizen, and (or) name, series, number and date of issue of this document to the citizen entitling him/her to permanently reside in a foreign country.
- The date and basis of acquisition of another citizenship or receipt of the document granting the right of permanent residence in a foreign country.
- Information on extension of the term of the document granting the right of permanent residence in a foreign country, or to obtain a new relevant document.
- Information about filing an application to a competent authority of a foreign state on withdrawal of the citizen from the citizenship of the relevant state or refusal of available documents on the right of permanent residence in a foreign country (in the case of submission of such application).
Legal representatives will be obliged to send notices for minor citizens and partially incapacitated citizens.
The notice of a second citizenship must be accompanied by a copy of the foreign passport (residence permit) of the RF citizen and, if the notice shall be send by parent (guardian or trustee) – a copy of the Russian or foreign passport of the parent (guardian or trustee).
The Code of Administrative Offences and the Criminal Code of the Russian Federation are also amended.
So, for violation of the notification procedure, the individual may be held administratively liable and pay a fine from 500 to one thousand rubles.
In the case of concealing information about his/her foreign citizenship, the individual may be held criminally liable and pay a fine of up to 200 thousand rubles, or perform forced works for up to 16 days.
Meanwhile, the law provides for exceptions. They relate, for example, to individuals who are RF citizens, but permanently reside in another country.
From 01.01.2015 the amendments to the Tax Code come into force under the Federal Law No.68-FZ of 04.10.2014 “On amendments to articles 12 and 85 of the first and second part of the Tax Code of the Russian Federation and the invalidation of the Law “On taxes on personal property”.
According to the amendments to the second part of the RF Tax Code chapter 32 “Tax on personal property” is introduced. The RF law from 09.12.1991 No. 2003-1 “On taxes on personal property” became invalid.
This chapter provides for a new procedure for calculating the tax base for the property tax.
The main innovation is the fact that the amount of tax is calculated on the basis of the cadastral value of the property.
The cadastral value is the market value of the real estate established by the state cadastral appraisal determined by mass methods of appraisal, or, if it is impossible to determine the market value by mass methods of appraisal, the market value, determined individually for each particular real estate in accordance with the legislation on appraisal activity.
The results of the cadastral appraisal are subject to approval by the executive body of the subject of the Russian Federation or the local self-government authority, the transfer to the Rosreestr and official publication. After this the information on the cadastral value of the property item shall be entered in the state cadastre of real estate.
The law laid down the following tax rates:
0.1 % for:
- Residential buildings, residential facilities;
- Constructions in progress if the designed purpose of such objects is a residential house;
- Unified real estate complexes, which include at least one residential facility (residential house);
- Garages and parking spaces;
- Household buildings or structures, the area of each of which does not exceed 50 square meters and that are located on land lots provided for private auxiliary, suburban household, gardening, horticulture or individual housing construction.
2% for items included in the list approved by the competent executive authority of the Russian Federation:
- Administrative and business centers, shopping centers and facilities in them;
- Non-residential facilities, the purpose of which is accommodation of offices, retail facilities, catering facilities and household services which actually are used for accommodation of offices, retail facilities, catering facilities and household services;
- Real estate of foreign organizations that do not operate in the Russian Federation through a permanent establishment, and real estate of foreign organizations not related to the activity of such organizations in the Russian Federation through permanent establishments;
- Residential houses and residential facilities, not accounted for in the balance sheet as fixed assets in the manner prescribed for bookkeeping.
- Objects of taxation, the cadastral value of each of which exceeds 300 million rubles.
0.5% for other objects of taxation.
The tax rates may be increased, but not more than three times or reduced to zero by the regulatory and legal acts of the representative offices of the municipal entities.
In determining the tax base, apartments of 20 sq. m., rooms of 10 sq. m., residential houses of 50 sq. m. are tax exempt. The tax is charged on areas that are not subject to tax benefit.
During the first four tax periods from the beginning of application of the cadastral value of objects, the amount of tax payable will be calculated with a special formula using a rate equal to:
0.2 – applicable to the first tax period;
0.4 – applicable to the second tax period;
0.6 – applicable to the third tax period;
0.8 – applicable to the fourth tax period.
From 1 January 2015 a new obligation of individuals applies – to report to the inspectorate about the objects of transport tax, land tax and property tax if during the entire period of ownership of the said real estate or vehicle the taxpayer did not receive notices and did not pay taxes.
The Federal Law of 24.11.2014 No. 366 -FZ “On amendments to the second part of the Tax Code of the Russian Federation and certain legislative acts of the Russian Federation” invalidated point 4 of article 224 of the Tax Code, which provides for a 9% for personal income derived from the share of participation in organizations received in the form of dividends.
Thus, the dividend income received by individuals from 1 January 2015 is subject to tax at a rate of 13%. At the same time, it does not matter for what period the dividend is paid; for tax purpose the date of actual receipt of funds is applicable.
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