TO: Officials-in-Charge of Headquarters Office
Director, NASA Centers
Director, JPL
FROM: I/Associate Administrator for External Relations
SUBJECT: Russian Personal Income Tax Liability for NASA Employees and Contractors Summary
NASA personnel (i.e. US Government personnel) who are assigned to Russia on official duty, whether PCS, TCS, or TDY, are not liable for Russian personal income taxes on their income paid by the US Government (USG). Employees of NASA contractors, however, who spend more than 183 cumulative days in Russia, are liable for Russian personal income taxes and are expected to file both preliminary and final returns. They may subsequently be exempted from paying tax, however, by also filing a certificate provided to them by the Embassy.
Headquarters and Center officials are requested to inform their travelers to Russia about the provisions of this memorandum, as well as to make the information in this memorandum available to contracting firms who may have employees subject to Russian personal income tax. Discussion
Who is liable? Generally speaking, anyone present in Russia for more than 183 cumulative days in the calendar year is considered a resident for tax purposes and is expected to file Russian personal income tax returns. The major exception to this is for individuals who are USG personnel on official duty.
The obligation to pay Russian personal income taxes is specified in a tax treaty, entitled the "Russia Income Tax Treaty, between the United States and Russia." The Treaty and protocol were signed June 17, 1992, (a full text of the Treaty can be found at: http://www.cs.indiana.edu/hyplan/vmenkov/tax/ru%2dtreaty%2etxt).
Exemption for USG Employees. According to Article 16 of the Treaty, payments made from the public funds of the United States to compensate individuals for performing duties of a governmental nature are subject only to US, and not Russian, personal income tax. (The text of Article 16 is at Enclosure 1.) Article 16 is understood by the U.S. Embassy in Moscow to exempt all USG personnel who are in Russia on official duty from paying Russian personal income tax on their income paid by the USG. Official status is presumed by virtue of holding an official passport and by having official USG travel orders. NASA personnel who are concerned about the applicability of this provision, may have a letter provided to them by the NASA Moscow Liaison Office (NMLO) at the US Embassy in Moscow, confirming their status as USG personnel and their exemption from Russian tax liability. The NMLO can be reached at (256) 961-6333 or (256) 961-6335 (fax).
Article 26 of the Treaty adds that nothing in the Treaty will affect the fiscal privileges of members of diplomatic missions under the general rules of international law. This means that such members are not liable for Russian personal income tax, (although fully liable for US taxes) and the 183 cumulative day rule does not apply. According to a Treasury Department technical explanation of the Treaty, this provision applies to "technical staff and other employees of such missions as well as those with diplomatic status." To the extent NASA personnel are considered members or technical staff of the US diplomatic mission in Russia, Article 26 may provide additional support for the position that such personnel are exempt from Russian personal income tax. The issue of spousal coverage is currently under review.
Individuals who will incur a Russian personal income tax liability are those non-government employees who are residents in Russia for more than 183 days (cumulative) during the calendar year. In practice this applies to employees of NASA contractors operating in Russia such as: Boeing, CSC, TTI, and others.
Exemption for NASA contractors. The US Embassy has sought, and has received from the Russian government, permission to treat contractors, working under contracts concluded with the USG, the same as USG personnel – i.e., as exempt from Russian personal income taxes. The exemption is based on the rationale that the contractors are paid by public funds and are performing functions of a governmental nature, and it applies to all US contractors who are in compliance with its provisions. This exemption thus should apply to most, if not, all NASA contractors in Russia.
It is important to note that the contractors who are caught by the 183-cumulative day rule are still required to file both preliminary and final Russian personal income tax returns. The exemption for income earned in Russia will be claimed by filing with their final Russian personal income tax returns, a certificate to the effect that they are tax exempt. This certificate will be prepared by the NASA Moscow Liaison Office and provided on request. (See Enclosure 2 for an example of this certificate.)
Responsibilities. In Russia, as in the US, it is up to the individual to take care of one’s income tax obligations.
Addressees are requested to inform their personnel who travel to Russia about the information contained in this memorandum. (An Instruction Sheet is provided at Enclosure 3). Addressees are further requested to advise contracting firms within their purview, of the Russian personal income tax provisions in this memorandum in order to ensure that their employees properly meet their obligations.
John D. Schumacher
Enclosure 1
"Article 16
Government Service
1. Remuneration, excluding a pension, paid from the public funds of a Contracting State, a political subdivision or local authority of the United States or any republic or local authority of Russia to an individual in respect of services rendered in the discharge of functions of a governmental nature shall be taxable only in that State. However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:
a) is a citizen of that State; or
b) did not become a resident of that State solely for the purpose of rendering the services.
2. Any pension paid from the public funds of a Contracting State, a political subdivision or local authority of the United States or any republic or local authority of Russia to an individual in respect of services rendered to that State, subdivision, authority or republic shall be taxable only in that Contracting State. However, such pension shall be taxable only in the other Contracting State if the individual is a resident of, and a citizen of, that other Contracting State.
3. Notwithstanding the provisions of Paragraphs 1 and 2, the provisions of Article 13 (Independent Personal Services), Article 14 (Income from Employment), or Article 17 (Pensions), as the case may be, shall apply to remuneration paid in respect of services rendered in connection with a business."
Enclosure 2
DRAFT
EXEMPTION FROM PERSONAL INCOME TAX (EXPATRIATES ONLY)
The United States Embassy Letterhead
This letter is to certify that [name of individual not normally resident in Russia] was paid wages of $___________ from United States funds in the current calendar year to implement a program of technical cooperation with the Russian Federation in [brief description of activity], which he/she is carrying out under [Contract/Grant/Cooperative Agreement] No. _______________ during the period _________ to _________.
This certification is provided pursuant to the letter No. 04-06-02 from the Deputy Minister of Finance to the Chargé d’affaires of the United States Embassy, dated May 21, 1998, which grants the privileges provided for in Article 16 of The Agreement between the Russian Federation and the United States of America on Double Taxation of Taxes and Capital of June 17, 1992, to US experts working in Russia under contracts concluded with the US government. The certification shall be sufficient to exempt the individual named above from any Russian Federation individual income tax on the wages specified above in the current calendar year.
FOR THE EMBASSY OF THE UNITED STATES OF AMERICA IN MOSCOW
________________
Name and Title
Seal
_______________
Date
Enclosure 3 Russian Personal Income Tax Liability
Instruction Sheet
- NASA personnel do NOT have to pay Russian personal income taxes on their income from the U.S. Government. This is true for TDY employees as well for those on Permanent or Temporary Change of Station status.
- NASA contractors who spend less than 183 days in a given calendar year in Russia do NOT have to pay Russian personal income taxes.
- NASA contractors who spend more than a total of 183 days in a given calendar in Russia are liable for Russian personal income taxes and are expected to file both a preliminary and a final return. These individuals are advised to work with their employers to meet this requirement. While preliminary and final returns must be filed, an exemption from paying tax may be obtainable by including a certificate with one’s final return indicating that one’s activities in Russia have been paid for with "public funds." The NASA Moscow Liaison Office (NMLO) at the US Embassy in Moscow can provide this certificate. The NMLO can be reached at (256) 961-6333 or (256) 961-6335 (fax).
Officials-in-Charge of Headquarters Offices:
AI/Gen. Dailey
AB/Ms. Tagg
AC/Mr. Ladwig
AE/Dr. Mulville
AF/Mr. Venneri
AO/Mr. Holcomb
B/Mr. Holz
C/Mr. Christensen
E/Mr. Reese
F/Ms. Novak
G/Mr. Frankle
H/Mr. Luedtke (Acting)
I/Mr. Schumacher
J/Mr. Sutton
K/Mr. Thomas
L/Mr. Heffernan
M/Mr. Rothenberg
P/Ms. Wilhide
Q/Mr. Gregory
R/Gen. Armstrong
S/Dr. Weiler
U/Dr. Nicogossian
W/Ms. Gross
Y/Dr. Asrar
Z/Ms. Garver
Directors, NASA Centers:
ARC/Dr. McDonald
DFRC/Mr. Petersen*
GSFC/Mr. Diaz
JSC/Mr. Abbey
KSC/Mr. Bridges
LaRC/Dr. Creedon
LeRC/Mr. Campbell
MSFC/Mr. Stephenson
SSC/Mr. Estess
Director, Jet Propulsion Laboratory:
Dr. Stone
bcc: Mr. Scott Wood/JSC
IH Chron, APD, NMLO
Prep: DME; gec; mlh
File: Russia General
u://Data/Russian Taxes/Russian Income Tax MFR (2).doc
Concurrence:
G |
