Do I have to pay personal income tax?
Question
I am a Russian citizen, working on a project for an oil and gas consortium which has companies in Cyprus, Russia and Canada. Although my engagement is signed with the Cyprus holding company, I do not permanently live or work from Cyprus. In fact, I have to travel and spend time in each country for the purpose of my employment. As such, I do not accumulate 183 days in either country.
What is my tax residence and should I pay any income tax and where?
What is my tax residence and should I pay any income tax and where?
Answer
Thank you for that really interesting question. For natural persons, the tax liability is based either on residence (worldwide income for residents) or local source income only (for non-residents). What determines tax residency depends on the tax legislation of the country in question. In your case, since you do not mention from where payments for your service are made (income source), we have to look at three different tax law perspectives: Cyprus, Russia, and Canada.
Firstly, in accordance with the Cyprus Income tax law 118(I)/2002, you are not a tax resident of Cyprus because your period of stay in Cyprus does not exceed 183 days in aggregate. Since you are non-resident, all your Cyprus sourced income will be taxed at source 10%, according to the income tax law.
Secondly, the Tax Code of the Russian Federation, similar to that of Cyprus, determines tax residency based on your physical presence (the 183 days criteria). As non-resident of Russia, there will be 30% tax on your income from sources within Russia.
Thirdly, the Canadian Income Tax Act does not define the term resident; however, courts in Canada have held “residence” to be determined by a number of criteria. Nevertheless, if your link with Canada is only the project implementation or supervision, then you are non-resident. The withholding tax in Canada for similar fees made to non-resident individuals is 25%.
Technically speaking, you do not have tax residency and even the existing tax treaties between Cyprus and Russia (treaty of 1998), Cyprus and Canada (treaty of 1984), and Russia and Canada (treaty of 1997), do not apply to you. Your income is taxed only once as guest income (withholding) and you do not need to fill tax returns anywhere. The obligation to deduct and remit tax from your income is with the companies making the payments and not yours. In addition, the complexity of the situation due to the number of jurisdictions and the awkwardness of not having tax residence requires that you make your tax plan in conjunction with the company that has engaged you for this project.
Finally, being in your situation, where you do not have tax residence, is equivalent to being a permanent tourist or a world citizen. For some, this is a mode of life, for others philosophy or even a dream and for you, perhaps, a tax optimization opportunity. When Socrates said, "I am not an Athenian or a Greek, but a citizen of the world" he probably did not expect that in the future, most countries will treat tourists far better than their captive residents or citizens.
Firstly, in accordance with the Cyprus Income tax law 118(I)/2002, you are not a tax resident of Cyprus because your period of stay in Cyprus does not exceed 183 days in aggregate. Since you are non-resident, all your Cyprus sourced income will be taxed at source 10%, according to the income tax law.
Secondly, the Tax Code of the Russian Federation, similar to that of Cyprus, determines tax residency based on your physical presence (the 183 days criteria). As non-resident of Russia, there will be 30% tax on your income from sources within Russia.
Thirdly, the Canadian Income Tax Act does not define the term resident; however, courts in Canada have held “residence” to be determined by a number of criteria. Nevertheless, if your link with Canada is only the project implementation or supervision, then you are non-resident. The withholding tax in Canada for similar fees made to non-resident individuals is 25%.
Technically speaking, you do not have tax residency and even the existing tax treaties between Cyprus and Russia (treaty of 1998), Cyprus and Canada (treaty of 1984), and Russia and Canada (treaty of 1997), do not apply to you. Your income is taxed only once as guest income (withholding) and you do not need to fill tax returns anywhere. The obligation to deduct and remit tax from your income is with the companies making the payments and not yours. In addition, the complexity of the situation due to the number of jurisdictions and the awkwardness of not having tax residence requires that you make your tax plan in conjunction with the company that has engaged you for this project.
Finally, being in your situation, where you do not have tax residence, is equivalent to being a permanent tourist or a world citizen. For some, this is a mode of life, for others philosophy or even a dream and for you, perhaps, a tax optimization opportunity. When Socrates said, "I am not an Athenian or a Greek, but a citizen of the world" he probably did not expect that in the future, most countries will treat tourists far better than their captive residents or citizens.