Ask:
I am currently employed by a Russian company based in Cyprus and I frequently go to work for our Russian office on matters related to information technology. My total income is made up of three elements: the salary I receive from Cyprus, personal allowances paid by my employer for business trips to Russia, and additional remuneration from the Russian parent company for the work I do there.
How will my income be taxed in Cyprus and Russia?
Answer:
Thanks for your question.
It appears that you are a tax resident of Cyprus, therefore your worldwide income will be taxed according to the Cyprus Income Tax Law 118 (I)/2002. In addition, as you are a tax resident of Cyprus, you will be able to apply the provisions of the double taxation agreement between Cyprus and Russia (1998 Tax Treaty).
Firstly, your Cyprus source of income (salary and personal allowances) will be taxed at progressive tax rates. However, you may qualify for some tax exemption under the “90 day rule” mentioned in Art.36(5) of the Cyprus Income Tax Law. In principle, the “90-day rule” provides that income from salaried services provided outside Cyprus for more than 90 days in a tax year will be exempt from tax as long as the service is provided to a non-Cyprus resident employer or a non-Cyprus resident. permanent establishment of an Employer resident in Cyprus. To illustrate, let’s say her salary in Cyprus is €60,000 per year, an allowance of €10,000 per year and she worked for her Russian office for 4 months during the fiscal year. Under the 90-day rule, 4/12 (ie €20,000) of her salary in Cyprus and the €10,000 allowance will be exempt from tax in Cyprus. The remaining €40,000 of your income will be taxed in Cyprus at progressive tax rates.
With respect to the payments you received from the Russian company, although tax may be withheld from you in Russia according to article 15 (1) of the 1998 tax treaty, this income will continue to be exempt from tax in Cyprus according to the “rule of the 90 days”. “. From a pragmatic point of view, it is preferable to obtain a withholding tax exemption from the Russian tax authorities, as it will save you time in the process of recovering withholding taxes in Russia.
Finally, it is important to note that you must have, should the Cyprus tax authorities request it, evidence that you spent more than 90 days outside of Cyprus (boarding passes, border passport control stamps, etc.) and Justify your work for the Russian company.