Methods of counting the number of days of stay for the purpose of determining the country of tax residence: initiatives of the European Union and the Russian Federation
In Russia, starting from 2025, it is planned to introduce an automated system that will determine the tax and currency resident status of individuals based on:
- international passports,
- documents confirming residence in a foreign country,
- border crossing marks.
Tax residents of the Russian Federation are individuals who are actually on the territory of the Russian Federation for at least 183 calendar days over the next 12 consecutive months.
Currency residents are (1) individuals who are citizens of the Russian Federation and (2) permanent residents of the Russian Federation based on a residence permit, foreign citizens and stateless persons.
Let's consider the difference between these concepts.
- Tax residence of a person is a legal status that entails the obligation to pay taxes to the budget of a particular state. Tax residency can be full (when you pay taxes on worldwide income) or limited (when you pay taxes based on the location of your source of income).
- Currency residence is a legal status, which entails a set of obligations and rights established by currency legislation. For example, notifying the tax authority about the opening, closing, changing details of accounts in foreign banks, as well as submitting reports on cash flows on them based on Article 12 of the Federal Law of December 10, 2003 No. 173-FZ “On currency regulation and currency control.”
Schengen Information System
Similar experience is planned to be introduced in the European Union and the Schengen countries (Iceland, Switzerland, Liechtenstein, Norway). Thus, within the Schengen borders, based on a closed database SIS (Schengen Information System), which will contain biometric data of individuals, the Schengen agreement member states will track movements across the border without marking border crossings.
Currently, the status of a tax resident based on the number of days of actual stay is confirmed based on the marks in the passport about crossing the border. At the same time, the issue of taking into account the fact of crossing the border between states in cases where there is no border control (for example, when crossing the border between Russia and Belarus, stamps are not placed in the passport of an individual) is not yet resolved.
As we see it, the introduction of an automated system will require the creation of additional control points and alternative ways of recording border crossings.
In practice, there are situations when you need to confirm tax residence for long periods, but the marks in the passport are either poorly printed or a little erased. We believe that in such situations, an automated system will make it easier to determine tax residence.
How these innovations will work in practice and how law enforcement practice will develop is a pressing question. The REVERA Private Clients team will monitor the changes and talk about them on our Telegram channel.
Authors: Yaroslavna Zadesenskaya, Anastasia Sazonova
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