Tax residency: concept, principles, criteria for tax residency for individuals

The concepts of "resident" and "non-resident" are quite common in the practice of taxation issues and other areas of business, for example, in banking operations when transferring funds to accounts abroad. In this regard, knowledge of information about the difference in the concepts of “resident” and “non-resident” is very important for many individuals and legal entities. Consider the subtleties of the definition of these terms and their differences from each other in the materials of this article.

The concepts

The term refers to the field of citizenship. The main thing to note is that if a resident is necessarily a citizen of a country, then a non-resident is not necessarily a foreign citizen.

General idea of ​​the resident: this refers to a legal entity or an individual who is registered in the country, full application of local legislation is possible to him.

Non-residents include those legal entities or individuals that operate in one country but have a registration and place of residence in another.

Resident status is formed under the influence of the following principles of tax residency:

• the amount of time spent in the country;
• regular presence in the country (possibly with short trips);
• the presence or absence of a residence permit, as well as a special visa (work or study).

The factors listed above are characteristic not only for our country, but also for most foreign countries.

The main legislative documents that can be referenced in determining the status of a citizen are:

• No. 173-ФЗ On Currency Regulation, the latest change from 08/03/2018 No. 293-ФЗ.
• The Tax Code of the Russian Federation (Art. 207), latest revision of 04.03.2017 No. 58-FZ.

What does currency legislation say?

These concepts are considered in sufficient detail in our legislation. However, they have a slightly different interpretation, even among Russian legal acts. So, slightly different angles of view on these terms offer currency and tax laws.

If we take the law of the Russian Federation “On currency regulation and currency control” No. 177-FZ, then, according to this regulatory act, the following categories are identified as residents:

• official citizens of the Russian Federation, except for those who permanently reside in foreign countries;
• foreign representatives of other countries and individuals who do not have citizenship in the Russian Federation, but live on the territory of the Russian Federation permanently.

In other cases, an individual is recognized as a non-resident.

In accordance with the identified status, various conditions and requirements will apply to a person when making transactions in the territory of the state of the Russian Federation, for example, when opening and maintaining bank accounts, conducting currency transactions, making money transfers, etc.

Here are the documents required to prove the non-resident's currency status:

• a copy of the passport with the dates of crossing the borders of the Russian Federation;
• a copy of a residence permit, student or work visa, which are able to confirm the fact of a citizen living abroad.

Being ordinary citizens of the Russian Federation and not facing the need to conduct operations on foreign currency accounts, we may not be interested in these legal aspects. But as soon as questions arise about conducting foreign exchange transactions for any reason, one should pay attention to the fact that, as a resident of the Russian Federation, an individual has the right to transfer his currency values ​​to other individuals, to have foreign currency accounts.But with the status of non-resident of the Russian Federation, such a right is absent, since all opened accounts fall under the jurisdiction of a banking institution, including when transferring foreign currency. The bank must be exclusively authorized by the Central Bank of the Russian Federation.

Essence

The term "tax residence of the Russian Federation" refers to the belonging of a company or individual to the tax system of the Russian state. At the same time, the resident is responsible for tax payments to the state, that is, he is obliged to declare all received income. Any person can receive status regardless of his citizenship or affiliation.

The main essence of this concept is that not only citizens, but also people who live or conduct commercial activities, relate to the tax laws of a particular country.

Such trends are quite pronounced in Western European countries. Millions of non-residents live on the territory of these states on a permanent or temporary basis. Most of them with different citizenship are fully subject to the tax rules of a particular country. It should be noted that in Western Europe the system of international agreements that regulates the taxation sphere is well developed.

Features of residence in tax law

If we take the Tax Code of the Russian Federation, then the concepts studied are clearly delimited in Art. 207. Under this article of the law, the concept of a resident includes:

• Citizens of the Russian Federation, foreign citizens with a lack of citizenship who have lived within the Russian Federation for at least 183 days, that is, almost six months.
• Individuals liable for military service, as well as government officials, even when they are outside the Russian Federation in the event of a business trip.

Non-residents of the country include all other categories of citizens, in particular those who stay on its territory for less than 6 months.

If a foreigner is in Russia, then he can be a non-resident under the currency legislation and a resident under the tax law.

The main responsibilities that lie with the tax residency of individuals in the Russian Federation:

• inform the authorities about the fact of opening new accounts abroad;
• inform the inspectorate of the operations that were carried out on these accounts.

Identified differences between tax and currency laws

Based on the above information, conclusions can be drawn about the differences that are displayed in the table below.

Changes to legislation in 2018

We note the current legislative changes: until 2018, those citizens and persons who have been abroad for more than 1 year were considered currency non-residents. However, when crossing the borders of the Russian Federation (even for 1 day), they became currency residents. The changes occurred on January 1, 2018, when, according to the new law, all citizens of Russia (regardless of the period they were in another country) are considered currency residents.

Note the peculiarity of this situation: individuals - citizens of the Russian Federation who live abroad for more than 183 days, throughout the year have the opportunity to be exempted from restrictions on currency legislation. Moreover, they are obliged to inform the tax office about the availability of accounts in foreign banks.

It can be concluded that the concepts of a resident in currency and tax laws have become very close and have fewer differences.

How does the state itself look at the status issue?

The state of the Russian Federation shares the tax status of citizens as follows:

• Citizens of the Russian Federation are residents of the Russian Federation, except for the proven situations of their residence in the country for less than six months (183 days).
• When considering foreign citizens, the situation is the opposite: they are all considered non-residents, with the exception of those who prove the opposite by providing evidence of their residence in the Russian Federation for more than 183 days. That is, documents alone (residence permit, for example) are not enough. It is necessary to prove the fact of your residence in the Russian Federation for more than six months.

Summary Status Comparison

Summarizing all the above characteristics, we will compile a final table that gives an idea of ​​how the statuses of resident and non-resident differ according to our laws.

As a result, the tax law does not matter what citizenship the person concerned. The basis for it is the period (period) of stay in our country.

Benefits of resident status:

• free disposal of currency funds;
• the possibility of giving, wills, acquisition of foreign currency funds.

Disadvantages of resident status:

• the need to constantly provide information to the tax office on opening accounts and conducting transactions on them.

Advantages of non-resident status:

• no need to provide reports to the tax authorities about opening accounts and conducting transactions on them.

Disadvantages of non-resident status:

• currency management is limited to the list of available banks;
• the list of banks is constantly being reviewed;
• increased tax rate;
• difficulty in conducting a number of financial transactions.

The rights

After considering the concepts, it is necessary to turn to questions regarding the study of the rights of these categories of citizens.

Residents as participants in foreign exchange transactions have the following rights:

• the ability to open bank accounts in foreign currency;
• conducting various currency transactions on accounts that were opened with banks earlier;
• conduct currency transactions on those accounts that are opened with foreign banks outside the Russian Federation;
• Settle in foreign currency of any orientation (the conversion rate is determined by the client’s bank, regardless of the currency in which the account is opened).

Unlike residents, non-residents can distinguish the following rights when conducting currency transactions:

1. Open various foreign currency accounts with banks, as well as carry out transactions in national currency.
2. The ability to transfer currency from an account with a bank of the Russian Federation to a foreign bank without restrictions.
3. No restrictions on transfers to foreign banks.
4. The ability to credit securities from special accounts with the permission of the Central Bank of the Russian Federation.

In FZ-173, situations related to the right specified in the first paragraph were stipulated. However, there are restrictions on the list of such banks. Among them may be only those authorized by the Central Bank of the Russian Federation to conduct such operations. From time to time, the list is revised at the legislative level.

To open an account, a non-resident applies the rules stipulated in art. 846 of the Civil Code of the Russian Federation. Opening documentation is similar to that for residents.

The package of documents in order to receive a certificate of tax residency consists of the following list:

• completed form;
• passport;
• migration card with the specified date;
• a document providing permission to stay in the country;
• a document granting permission from the Central Bank of the Russian Federation to open an account with a bank.

Certificate as the main document

A tax residency certificate is a very important document that is necessary for the application of international agreements to avoid double taxation. What is this paper for?

The tax residency certificate of the Russian Federation is a document confirming the permanent location of a person for tax purposes. It can have different names and features.

The main cases in which documentary evidence of the tax residence of a person or organization may be required are as follows:

• the need to use benefits in respect of income paid to an alien;
• determination of the amount of tax liabilities of a person in a particular country;
• the need to approve the status of a tax resident of the state for other purposes.

Features of taxation

Differentiation of categories of persons into residents and non-residents has certain consequences in the field of taxation at rates.

We emphasize once again that under the current tax laws:

• tax resident is a citizen of the Russian Federation;
• non-residents and foreign citizens are individuals who are in our country for more than 183 days.

If you have a residence permit, it is too early to talk about the status of a tax resident.

The table shows information on tax rates for the studied category.

As for non-residents in the territory of the Russian Federation, they have their own taxation rules reflected in the table below.

It should be remembered that the fact of a tax residence must be confirmed so that the SB does not have additional reasons for inspections.

Features of determining the status for legal entities

Determining the status of a resident or non-resident becomes a particularly important element of business for legal entities.

The latter include an organization registered legally in the current legislation, which has its own property and is liable for its obligations to counterparties.

The tax residency status of organizations is very important for them, since it predetermines the rules by which they will pay taxes, keep records of their payments.

If we talk about the choice of status for a legal entity, it should be noted that in case of assignment of non-resident status, the company will have to pay duties only in the amount of the share of profit that was received as a result of the functioning of assets in Russia, the other part goes to the treasury of other states. If we talk about the resident status for a legal entity, then in this situation the company must inform the inspectorate about the sum of all its income, all duties from which go to the treasury of the Russian Federation.

Tax residency of legal entities means:

• be registered in the Russian Federation;
• be an alien who has entered into an agreement with other countries on acquiring resident status;
• to be a foreign person, but managed from the territory of the Russian Federation.

Legal entity, if it is non-resident:

• openly in a foreign state and operates according to the laws of that state, but has branches in our country;
• if located abroad.

The fact of the place of registration of the company and the country where its activities are conducted is a confirmation of tax residency.

It should be noted that the main factor that affects the moment of determining the status is not the citizenship of the Russian Federation, but the time spent in our country.

Cyprus tax residency

The Cyprus income tax law has been amended. Now, a person who does not stay in his country for more than 183 days in one tax year and is not a tax resident in any other state can be considered a tax resident of Cyprus, subject to the following conditions:

• stay on the territory of the state for more than 60 days;
• conducting any activity in the territory of Cyprus;
• Permanent residence on the island, which may belong to it or be rented.