In the course of implementing the tax measures proposed by the President of the Russian Federation in his address of 25 March 2020, the Federation Council of the Russian Federation approved the relevant amendments to tax legislation adopted by the State Duma of the Russian Federation (as of 03.04.2020)
One of the amendments concerns the taxation of interest income on deposits.
Interest income received on all an individual’s deposits is now subject to taxation at the rate of 13% to the extent it exceeds the following amount:
RUB 1 million x key rate of the Bank of Russia*
*The key rate established on the first day of the tax period is used for the calculation
Accordingly, not the entire interest income is included in the tax base, but only the portion exceeding the above amount.
For the purpose of calculating the tax liability, what matters is not whether the total amount of assets on bank accounts exceeds RUB 1 million (as previously stated), but specifically whether the threshold for interest income, calculated for each tax period based on the key rate of the Bank of Russia, is exceeded. Therefore, interest on deposits with a total amount of less than RUB 1 million may still be subject to taxation if the interest rate is high.
Calculation example:
An individual’s total interest income on all deposits for the tax period amounted to RUB 100,000.
The key rate of the Bank of Russia as of 1 January of year N is 6%
The tax liability will be calculated as follows:
RUB 1,000,000 x 6% = RUB 60,000 – the maximum amount of interest income in year N that is not subject to taxation
RUB 100,000 - RUB 60,000 = RUB 40,000 – the amount subject to taxation at the rate of 13%
RUB 40,000 x 13% = RUB 5,200 – the amount of personal income tax payable
The individual is not required to declare such income. Russian banks will collect data on interest paid to the individual and transfer it to the tax authorities, which in turn will calculate the amount of the tax liability and send the relevant notice to the individual. Based on the notice received, the individual will be obliged to pay personal income tax. At present, a similar mechanism applies to property taxes.
Nuances:
The amendments apply not only to deposits, but also to any accounts on which interest is accrued on the balance
The amendments do not apply to accounts/deposits with an interest rate of less than 1%, or to escrow accounts
The 35% tax rate previously applied to interest income on deposits with a rate exceeding the key rate of the Bank of Russia plus 5 percentage points (i.e. exceeding 11% at the current key rate of 6%) is abolished; all interest income on deposits will be taxed at the general rate of 13%
The changes will come into force on 1 January 2021. Accordingly, the first data on interest income will be transferred to the tax authorities no later than 1 February 2022, and the accrued personal income tax must be paid by 1 December 2022.
A separate package of amendments will affect a number of exemptions currently applicable to income from the sale of shares/interests in Russian companies, as well as to coupon income on bonds. In particular, the exemptions are cancelled for:
Income in the form of a discount received upon redemption of exchange-traded bonds of Russian organizations denominated in rubles and issued after 1 January 2017
Interest on state treasury obligations, bonds and other government securities of the former USSR, of the member states of the Union State and of constituent entities of the Russian Federation, as well as on bonds and securities issued pursuant to decisions of representative local self-government bodies
This package of amendments will also enter into force on 1 January 2021, therefore in the current tax period (2020) the above exemptions will still apply.
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