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New In Taxation Of Individuals


In 2013, the Russian government began decreasing the tax burden on labor and capital and increasing it for consumption. This is most felt in how personal income taxes are handled. On one hand, additional personal income tax (PIT) preferences were created and, on the other hand, "luxury taxes" were introduced. (There are no official “luxury taxes”; the name refers to increased rates for property tax and transportation tax).

There will be no progressive tax scale, nor increased PIT. Leveling the tax burden between individuals with different incomes will be achieved by other methods.

Leveling of taxation of investment income

For the first time ever the Ministry of Finance (MinFin) indicated that tax liability on different types of investment income must be equal.

Currently, securities investments are less attractive for tax purposes compared to bank deposits and property investments.

While not yet offering a final solution, the Ministry of Finance suggests the following:

  1. Introducing an investment tax credit in the amount of the positive financial result received by the taxpayer in the fiscal period from conversion or redemption of securities owned by the taxpayer for longer than three years. This tax preference will not cover earnings on direct investments. For this purpose, the maximum tax-exempt income received from the sale/conversion of securities is limited to the amount of earnings received from the sale of securities equal to not more than 1% of company’s capital.
  2. Amended procedures for tax exemption of interest received by physical persons on bank deposits. MinFin suggests lowering minimum of tax-exempt interest on bank deposits. In particular, for foreign currency deposits – to 6% (versus 9% currently).
  3. Amending legislation on securities to recognize “Individual Investment Accounts” (IIA). This preference may be used in one of the following ways:

    - as an investment tax deduction in the amount of the deposit to the IIA but not exceeding 400,000 Rubles for the fiscal period;

    - as a tax deduction in the amount of the earnings received on transactions within the IIA, if IIA contract has been active for at least five years.

In a growing stock market, FIFO falls behind in comparison with LIFO. After FIFO became the only possible method of accounting of retiring securities, many investors experienced increased tax burden. Now they have to retire blocks of securities that were purchased earlier and, most likely, cheaper. But these investment tax preferences make FIFO more profitable, because earlier purchased securities have a higher chance to be complete exempted from PIT.


Lowering taxes on securities earnings and increasing taxation on bank deposits and property sales income for 2018-2020 will equalize the tax conditions for investments in different assets. An International Financial Center is being created in Russia, therefore tax preferences for stock investors are practically guaranteed. Tax liability on profits from bank deposit and property sales investments may grow, but it will only affect those who receive this type of investment profit on regular basis. Tax burden for final consumption will increase due to higher taxes for expensive property and cars.

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