«The Song of the Stormy Petrel» is a short piece of revolutionary poetry written by Russian writer Maxim Gorky in response to bloody crackdown on student demonstration in March 1901 in St.Petersburg. The poem contains powerful call to action and determination for victory.
The lines of the poem, that are most popular and known these days in Russia are: «The dumb penguin is shyly hiding his fat body in the crevice… Only the proud Petrel is soaring, ever bold and free, over the sea grey with foam!»
The lines were rehashed into a popular Russian joke saying: «The dumb penguin is shyly hiding, the clever one is boldly taking». Philosophical and economic connotations were emphasised, so to speak.
I used to have and continue to have discussions with my highly valued, precious clients about very significant tax benefits offered by current Russian legislature.
Many westerners simply can’t believe that the opportunity may be exploited without provoking troubles from Tax Authority side. It seems to them too good to be true.
I wrote this article and I plan another one in order to illustrate legislative corner stones and practicalities behind very considerable, fully legal and yet missed tax savings and opportunities for immigration status upgrades.
The thing is: after you obtain your Highly Qualified Specialist (HQS) work permit (WP) you may go straight (waiting time 3-4 months) to 5-year Residence Permit (5RP), and skip enormous pile of bureaucracy, cost and time loss which I will describe in my further «additions in the margin by tax&legal practitioner» ;)
5RP among other pleasant things entitles you to work without work permit.
Here comes OPPORTUNITY #1
(1) 5RP holders do not need HQS WP as such - 5RP holder is fully equal in his labor rights to Russian citizen.
Here comes FEAR #1: «…as soon as I get RP I will load my business with my Russian social taxes (~30% on top of salary) as opposed to only straight 13% income tax on HQS holders without 5PR»
Here comes the solution and OPPORTUNITY # 2
(2) 5RP holder may register an ИП (Russian Type of Sole Proprietorship entity) and immediately apply Simplified Taxation System with gross income as taxable item taxed at straight 6%. Many of you know that this means plain 6% income tax applicable to anything below annual 60 000 000 rubles (>$900 000 acc to current rate) that you may make. Cut the story short - no other taxes. You legally avoid all your social taxes on the company. And you slash your income tax in more than half. That’s it. Quarterly payments. Once a year reporting. Minimal accounting, stamping and other paper-balling for your accounting dpt. Full legal status. Can you dream of it in your homeland? This is not an offshore - this is solid and sound Russian government policy maintained for years.
Again, THIS IS STATE POLICY, not some quirky Russian guys’ tax evasion scheme. Yes, Russia still has some liberal taxation regimes. Why not use them?
Also 5RP candidates are one step away from Russian Citizenship. I will dwell on expedited routes to citizenship in one of the following articles. Obtaining Russian passport means good-bye to all immigration routine and insecurities associated with the vagaries of immigration legislature or your lack of focus on compliance.
But here comes FEAR # 2
Many eligible candidates are apprehensive and prefer to shyly hide, while others are boldly taking. Russian business owners are long used to exploiting these opportunities, but expat community is pretty bubbled in Moscow. Sometimes it seems that westerners live behind impermeable walls (even those with Russian spouses;)
Sometimes you have only your paranoid chief-accountant’s opinion on the matter.
Note that your (and most of other) accountant’s income is not linked to business profits. But she/he is liable for correct tax reporting. Her/his priority is to keep her/his ass covered or over-covered. Sometimes regardless of how much it costs to you in overpaid taxes each month.
Sometimes you have conservative financial adviser (former chief accountant) who is “more royalist than the king”.
I invite you to discuss it with us and obtain second opinion substantiated by the summary of court rulings. Number of cases alone will tell you a lot, to say nothing about their contents. In other words careful analysis rocks.
I will provide a piece of such analysis. It will not be that thrilling to read (enumerations and quotations from of the Articles of Russian Civil and other codes), but if I would have to express it in one line epigraph, I would say: «tweak your company documents - you are in full control of the process».
Another popular saying may soon go to the frontburner: «All good things spin away quickly». Russian government in the current economic environment may reconsider the rules. So, don't miss your window. Cash in while you can (simply saving cost and making it a profit is also not a bad idea these days).