The Russian Tax Authorities explained that the tax residency status of individuals shall not be defined based on the 183 days rule, but also on the individual’s permanent place of living, or even based on their centre of vital interests.
In an official letter, the Russian Federal Tax Service clarified that the Russian tax authorities believe that individuals may be treated as Russian tax residents even if they are spending less than 183 days during a calendar year in Russia, if:
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they own residential property in Russia
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have a permanent registration status in residential premises
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their family lives in Russia
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their business or place of work is in Russia
In addition, many of Russia’s double tax treaties stipulate that an individual may be deemed to be a Russian tax resident if their permanent residence or ‘centre of life interests’ is located in Russia.
Despite the above, industry experts view the above as legally incorrect as the Russian Tax Code does not support it. According to the provisions of the Russian Tax Code, if an individual spends less than 183 days in Russia during a calendar year,
then they automatically lose their Russian tax residency status.
Cyprus has similar rules as far as the tax residency of individuals, whereas an individual is considered a Cypriot tax resident if he or she spend more than 183 days in a calendar year in Cyprus.
Moreover, double tax treaty provisions referred to by the tax authorities, shall apply for defining tax residency status of an individual in cases where an individual is treated as a tax resident in both contracting States. This is often called the
“tiebreaking rule”.
It may be the case that the tax authorities are trying to create a foundation for challenging those individuals who waived their Russian tax residency status, however the official letters that included the clarifications are not themselves in compliance with the current Russian law.
In conclusion, the criteria that the Russian tax authorities will review upon deciding whether an individual is or is not a Russian tax resident are questionable and the need for substance in the tax residency country of an individual is growing.