Russia’s Finance Ministry concluded that a proposed hike of the personal income tax for those working remotely from other countries would not have helped the national budget, a senior official has said, explaining why the idea was abandoned.
The ministry considered increasing the tax rate for employees of Russian businesses who are residing in a foreign jurisdiction from the current 13-15% to 30%. In April, it introduced draft legislation in the State Duma, the lower chamber of Russia’s parliament, to enact the change but swiftly recalled it.
“If we introduced the 30% rate, businesses employing such people could create subsidiaries in other nations, and we would have lost both the personal income taxes and the [employer-covered] insurance contributions,” Deputy Finance Minister Aleksey Sazanov explained to journalists on the sidelines of the St. Petersburg International Economic Forum on Wednesday.
Russian businesses normally handle all payroll taxes for their wage-earning employees. The insurance contributions fund the national pension and healthcare systems and certain social benefits, such as paid maternity leave.
Some Russian citizens moved abroad in the wake of the military operation in Ukraine but kept their employment in Russia. Senator Andrey Klishas was among the senior officials who advocated hitting such individuals in the pocket.
“Can we change the law and restrict the schemes that allow such people to work from there and earn their money here?” he asked rhetorically in an interview last December. “Yes, we can.”
Others in the Russian leadership, including President Vladimir Putin, warned against an emotional reaction regarding those who left the country.
Last month, the Finance Ministry announced an updated taxation plan that included a streamlining of the personal income rate for employees of Russian companies. It decided that the rate should not depend in any way on residency.
“It is difficult for a company to monitor whether a remote worker is a Russian tax resident or not. So starting next year we suggest unifying the rules, and remote workers will pay the universal 13/15% rate regardless of their status,” Sazanov explained at the time. The higher rate is applied to income over a certain threshold.