A foreign passport: freedom, or new obligations

After the events of 2022, Russians have been obtaining passports of foreign states more and more often, seeking additional freedom of movement. Those steps are often accompanied by an underestimation of the tax consequences, which can be very serious.

An example: today, 16 December 2024, is the deadline for citizens of the United States to file a tax return with the IRS where they have previously asked for an extension (the standard deadline is 15 April).

It is important to remember:

The duty to file a return does not depend on where you live, or on the citizenship you held at birth. Even if you were born and live in Russia, and keep Russian citizenship, you must report your income to the tax authorities of the country whose citizenship you have acquired in addition. There is no double tax treaty between Russia and some countries (for example, between the United States and Russia). That means that all income received in Russia (for example, from letting commercial property) will be taxed both in Russia and in the country of the second citizenship.

Example: a citizen of Russia and of the United States lets commercial premises in Moscow and receives income of RUB 10,000,000 a year.

• In Russia he pays tax of 13% (RUB 1,300,000).

• In the United States the same income is taxed at a rate of from 10% to 37%. Because there is no agreement between Russia and the United States on the avoidance of taxation, he will have to pay up to a further RUB 3,700,000.

The consequences of failing to file a return, or of failing to pay the tax:

1. A penalty for filing late. In the United States, for example, up to 5% of the tax for each month of delay.

2. A penalty for paying the tax late.

3. Interest on the arrears.

4. Criminal prosecution. In extreme cases, imprisonment is possible.

5. Immigration consequences. For example, cancellation of a United States passport for a debt of more than $59,000.

If you already hold a foreign citizenship, or you plan to acquire one, you are obliged to study that country's tax legislation. A failure to meet tax obligations can lead to penalties, to problems with the passport, and to a still greater restriction of the freedom of movement you were seeking.

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