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Foreign Deposits And Personal Income Tax

According to Russia’s Ministry of Finance, the taxpayer is not obliged to declare interest (within 9%) from bank accounts located outside Russia as income.

Russian tax residents pay tax on income received from sources outside Russia and, in particular, interest on deposits in foreign banks.

According to the Tax Code, the PIT tax base for bank interest is determined as the sum that exceeds the amount of interest established by the contract, over the amount calculated on deposits in a foreign currency with a 9% annual interest rate.

Russia’s Tax Code regulations on bank interest earnings are applied regardless of the deposit’s physical location.

Financial experts believe that if the interest rate does not exceed 9%, it is not necessary to pay PIT or even to declare that income in Russia.

Meanwhile, a Ministry of Finance letter dated June 3, 2009 #03-04-05-01/410 clearly states that all interest received from a foreign bank by tax resident for the use of funds in a deposit account is income subject to declaration in Russia and makes up part of the tax base for PIT.

According to Point 4 of Article 229, as of 2010  taxpayers have the right to not declare income that is 1) tax-exempt in accordance with Article 217, or 2) fully withheld by a Tax Agent, as long as this does not interfere with the taxpayer’s tax deductions specified in Articles 218-221 of Russia’s Tax Code. Article 217 does not include interest on deposits in foreign banks, although interest income received by the taxpayer from foreign currency deposits starting from 9% per annum in banks located within Russia is classified as non-taxable income in Point 27.

In short, it is wise to proceed with caution when deciding what to do about bank interest earnings interest on PIT.

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