Russian tax rates

[mendeleyev]

 In view of similar posts in a different topic, perhaps it would be helpful in understanding Russia's tax system. I've tried to be accurate and owning businesses in Russia does give me some insights, yet I'm not a tax expert or attorney and you should not base any plans or business decisions on what is contained here. I have tried to be factual, but am not a tax authority and so if see something in error please point it out.

[mendeleyev]

Russia uses a flat tax for individual and corporate rates. The rate on most individuals is 13% and on those at the very top 26%. Because of the flat tax most Russians are not required to file a tax return. There are itemized deductions allowed for those whose total tax in all categories (federal-regional-local) exceeds the marginal maximum rate of 34%. All taxpayers regardless of status file as single, but again, most don't need to file. Those few required to file are not allowed extensions and the tax year is a uniform calendar system.

Pensions, subsidies and alimony are not taxable. Income from gambling of any form is flat taxed at 35%.

There is no inheritance or estate tax.

The flat corporate tax is 20% except for companies in the energy sector which pay a tax of 30-45% on annual profits. For companies paying the flat 20% tax on income, it is distributed as 18% to local and regional and 2% to the federal government.

Foreign residents pay from 15-30% on income earned in Russia but are protected by treaties against double taxation.

Most pensioners get free or reduced rates on public transportation and many are subsidized on utility payments.

There is a once per lifetime exemption on purchase / sale of a home valued at under a million rubles. Additional home sales are exempted for the first 250,000 rubles, taxed at 13% afterward.

[mendeleyev]

Capital gains are only taxed if the asset was held less than three years.

Dividends are taxed at 9% and interest at 20%, foreign residents pay 20% on both.

The constitution guarantees universal health care although there are a variety of ways the language of the document allows this to be accomplished, including the purchase of free market insurance and by 2025 Russia will have completed their slow evolution to a market system for health benefits with vouchers for the purchase of a health care program of one's choice.

Real estate taxes are capped at .03% for land used for farming or residential housing (including dachas),. Bodies of water used for fishing or forest areas that are privately owned are exempt from tax as long as timber is not harvested or the water used for commercial fishing. Such land / water used to generate an income is taxed at 6% annually.

Vehicle tax on passenger cars / vans: 700 rubles annually.

There is no sales tax in Russia but there is an 18% VAT on the sale of goods and services and imports into the Russian Federation. The taxable base is the sales price. Most basic foodstuff, children's clothing and footwear are exempt as are most medicines, including imported medical goods. There are several proposals now in the DUMA (parliament) to replace the VAT with a sales tax. Russia at one time had a sales tax until it was abolished in 2004.

Only this year has Russia allowed towing fees and storage fees to be paid on cars towed because of illegal parking. Most towing and storage facilities are owned by the state or a municipal entity and therefore until January 2013 the only fees paid to get your car out of hock was the parking fine. Now, additional fees are paid for towing and storage in addition to the fines.

Article 34 of the constitution says, Everyone shall have the right to use freely his (her) abilities and property for entrepreneurial and other economic activity not prohibited by law. This puts limits on the government when it comes to zoning property for specific uses.

[mendeleyev]

For most Russians, their utilities (gas, water, heat, electric) are subsidized by either the federal of a regional government entity. An oversight group, Russian Union of Engineers (RUE), works with the federal company Russian Utility Services to coordinate payments and the delivery of services to cities and / or citizens.

Russians love to complain about rising utility costs and it wasn't that long ago that the average apartment spent about 1,000 rubles monthly which is around ($ 33-30) as compared to 1,300 rubles for cable TV. Utility rates have risen however, as much as 26% recently for electricity. The average government subsidy is a 77/23% split with the government picking up the 23%. In his reelection campaign Mr. Putin promised to cap utility increases to 15% annually but that was just a campaign promise. Still, the amount a Russian apartment costs in total utilities is just a drop in the bucket when compared to most Western homes.

High speed internet is around $ 19 per month at 8-MB with a 40GB download limit.

Th RUE released a study in February of this year which according to Russia Today TV says, 1 in 5 city dwellings have no hot water, and 1 in 10 no indoor sanitation. More than 70 percent of the country's utilities network is worn out. The report went on to say that 12% of the nation's apartments were so old that they had no central heating. (http://Http://rt.com/news/russia-city-utilities-hot-water-indoor-plumbing-251/)

Gas / petrol prices at the бензоколонка (gas station) averages 23-28 rubles a litre depending on the octane about .96 cents (USD) for 95 octane and that is about $ 3.65 per American gallon.

Milk is subsidized and nationwide costs around 18 rubles per litre, or $ 2.20 a gallon, however in Moscow or Peter you'll pay 40 rubles for the same litre of milk. I haven't seen it recently, but in past times milk has been rationed and one needed a special stamp to purchase milk, available only to families with children or the elderly. I haven't seen that in some years however.

A loaf of bread is between 25-30 rubles, approximately .80 cents (USD).

[mendeleyev]

Under the Russian Labour Code the minimum wage for a Moscow / Petersburg resident is 11,700 rubles per month, $ 376 (USD), about 60% of that amount outside the Moscow and St Petersburg regions. The maximum overtime hours an employee can work is 120 hours annually. A minimum of 30 minutes daily for break / rest times is required but many companies allow longer periods. It is very common in Russian offices / factories to break for tea one in the morning and again at mid-afternoon.

Paid holidays: 28 calendar days plus national holidays. There are 14 days which qualify, the longest period is 1-6 January but I've seen the President declare that period to be extended in some years.

Sick pay: three days annually are paid by the employer. Anything over three days is submitted to the State Social Security and requires medical approval. Payment is made on a sliding percentage of salary depending on how long the employee has been with the company. After 5 years the employee is paid 100% sick pay up to an annual limit of 12,000 rubles, roughly a month's minimum wage for a Moscow resident.

Maternity leave: a female employee is entitled to 70 calendar days and in certain situations a father can apply for maternity leave in the case of severe health issues with the mother or if the child is born with a disability.

(Note: thanks to Ranetka, corrected: Maternity leave is 140 calendar  days 100% pay (70 days before birth and 70 after) for one baby pregnancy. One baby with complications during childbirth - 156 days, more than one baby - 194 days.)

Dismissal: For the most part an employee cannot be terminated except for cause. A dismissed employee, except in cases of gross misconduct, must be paid a minimum of two weeks (in some cases a month's pay is required) for severance. In cases of downsizing, etc, the employer must give an employee two months advance notice plus one month's severance upon release.

Unemployment: At the time of release the employee must receive the salary due to them as of that date, compensation for any unused holiday and (in case of layoff) one month average salary as a severance pay. If the employee remains unemployed while actively looking for work, the employer is required to pay the second and third month's salary while the person is unemployed. The month of pay given as severance in such a case would count as the first month of unemployment benefits.

[mendeleyev]

The unified social tax mentioned earlier covers things like health, pensions and social security (welfare) is 30% on the first 512,000 rubles and 10% thereafter and this is paid mainly by the employer, one of the reasons why many companies use an "envelope" system whereby an employee gets two salaries: one by check for the minimum wage and the rest in an envelope under the table. Businesses can deduct a portion of those amounts if they meet certain criteria.

As you can imagine the government is trying to root out this two tier system as it unfairly excludes a lot of money from being taxed and at the 13% individual flat rate, Russia already has one of the lowest tax rates of any developed nation in the world.

The unified social tax is split as follows: 22% goes into the Pension Fund, about 2.9 goes into the Social Insurance Fund (welfare, unemployment, disability) and 5.1% to the Medical Insurance Fund. In the pension amount of 22%, the Pension Fund uses 16% to fund current obligations and the remaining 6% is credited towards the individual's future pension needs although in his campaign for election, Mr. Putin promised to decrease that to 2%.

The retirement age to receive a pension is 60 years for men and 55 years for women, provided pension contributions have been made for a minimum of five years. The average government pension (not including things like health care, some utility payments and public transportation), is around 8,000 rubles monthly or $ 255 (USD). There are additional allowances and housing benefits for veterans of WWII.

The pension issue makes for a controversial topic in Russia these days because the Pension Fund is running in deficit mode, and many economic advisers think it foolhardy to lower the employee contribution amounts as deficits grow. There are calls for a gradual increase of the pension age to 63 but President Putin ordered the government to find a way to fund it at current retirement ages. That is in reality quite unrealistic as there are only 100 workers for every 87 pensioners today according to Pension Fund data.

These days Russians can voluntarily contribute to private retirement type accounts and such income is not taxed upon retirement. Such options however do not relieve them of paying the social and retirement taxes.

[Ranetka]

Maternity leave: a female employee is entitled to 70 calendar days and in certain situations a father can apply for maternity leave in the case of severe health issues with the mother or if the child is born with a disability.

Wrong. Maternity leave is 140 calendar  days 100% pay (70 days before birth and 70 after) for one baby pregnancy. One baby with complications during childbirth - 156 days, more than one baby - 194 days. :-)


http://www.papaimama.ru/arts.php?art=raschet-decretnogo-otpuska

[mendeleyev]

Thank you, Ranetka.

I've modified the original and noted your correction.

[onus]

Thanks for the post. Great information. Overall the tax rate seems very low though minus maybe the poorest people as flat tax isn't progressive. But, hey at least when you get a raise you don't end up taking home less money. Plus not doing tax returns saves a bunch of time.

The corporate tax might be similar in the USA ( i don't know off hand )  but you have to deal with both state corporate tax and federal corporate tax so it can end up being quite a bit higher than the Russian Tax.

I did notice that utility costs are dirt cheap. I was curious and asked my girlfriend and its a joke compared to what we have to pay for electricity, natural gas, water ( but we can drink ours ). I think the central heating reduces costs greatly. The plus side is i have never been in a Russian house that was cold.

The internet is a fraction of the cost i pay and it is nearly as fast. 

Gasoline costs are about the same maybe a bit cheaper than here in Connecticut. Diesel is much cheaper. Probably about 40 cents cheaper.

What about the vehicle tax based on engine horsepower? I don't see that mentioned. Is that a once a time thing or annual thing?

[mendeleyev]

In post 3:

Vehicle tax on passenger cars / vans: 700 rubles annually.

We should also remember Russia's new “Vehicle Recovery Tax” a disposal fee paid to get rid of a foreign made vehicle when it is old and ready for the junk heap. It is a tax paid to import a car and paid at the time it enters the country.

Cars in excess of 150 hp pay an excise tax.

[OlgaH]

Russia uses a flat tax for individual and corporate rates. The rate on most individuals is 13% and on those at the very top 26%. Because of the flat tax most Russians are not required to file a tax return. There are itemized deductions allowed for those whose total tax in all categories (federal-regional-local) exceeds the marginal maximum rate of 34%. All taxpayers regardless of status file as single, but again, most don't need to file. Those few required to file are not allowed extensions and the tax year is a uniform calendar system.

Most individuals are not required to file tax return because it is done by the enterprises they work for.

A simple example with a simple calculation:

Ivanov's monthly salary is 30,000 rub

13% Income tax - 3,900 rub

2,9% Social Insurance - 870 rub
5,1% Health Insurance - 1,530 rub
16% Pension Fund (Insurance part) - 4,800 rub
6%  Pension Fund (Accumulative Part) - 1,800 rub

The biggest part of Ivanov's salary assessments to budget is paid by an enterprise Ivanov works for. Plus the enterprise has many-many other taxes to pay.

Ivanov also pays additional taxes, for example, when he is shopping ( value added tax), if he has a car and land, he pays transport and land tax, different kind of government tariffs, "extortion" to schools, kindergarten and clinics, and so on. There is a lot of so called "masked" taxes, an average Ivanov even doesn't think about, he just pays ))