On March 5, 2025, the Ministry of Finance of the Russian Federation unveiled new regulations concerning the tax residency of bank clients utilizing foreign applications. This proposal stipulates the requirement for financial institutions to gather information on clients6 tax residency status based on their frequency of accessing bank mobile applications from abroad. The Ministry clarified this regulation, stating it is aimed at identifying changes in tax residency triggered by the use of remote service channels from outside the country.
The Ministry specifies what it calls 4preferential use4 of these services. According to the draft decree, clients who access online banking software from foreign territories more than 50% of the time for at least six months will need to provide updated tax residency information. This measure is intended to enable banks to efficiently maintain accurate records of their clients6 tax contributions and residency statuses.
Lawmakers from the Ministry of Finance highlighted concerns over the ability to ascertain tax residency solely through geolocation data. 4Such data will not automatically determine tax residency, but rather will serve as grounds for requesting updated client information,4 the Ministry stated. This move is to circumvent potential inaccuracies often encountered with geolocation technology.
Law firms specializing in tax law have expressed concerns about the practicality of these measures. Arsen Danielyan, partner at the law firm Emet, emphasized, "The lack of official requirements on documentation to confirm the actual physical location of individuals makes it problematic. Various scenarios, such as traveling without stamps on passports or frequent crossings through neighboring countries, can lead to confusion over tax residency status."
Danielyan elaborated on the use of passports for defining residency status, noting issues when clients travel with automated systems at airports. 4For example, it can be effortless for someone to lose their status through such travel if there is no formal record of entry or exit,4 he explained, highlighting the opportunities for misinterpretation of clients6 residency by the banks.
Ekaterina Boldinova, another tax law expert, echoed concerns surrounding the Ministry's methods for determining residency, arguing, "It is illogical to base residency status purely on geolocation from banking applications. This practice, if adopted, might not hold up under legal scrutiny." Nonetheless, some professionals, including Artem Evseev from the law firm EBR, suggested potential pathways for banks to navigate these challenges. Evseev mentioned, "While discrepancies between IP addresses and device settings could hint at VPN use, the real litmus test will depend on banks' adaptability to these technological requirements."
Banks themselves expressed mixed responses over implementing these measures due to risks tied to clients' usage of VPN services. Larisa Zalomikhina, Vice President of Compliance Management at Sberbank, acknowledges the challenges. 4Clients often employ VPNs to access banking applications without presenting accurate data on their real-life locations. This can significantly distort any inquiries made by financial institutions concerning tax residency,4 she noted.
For the majority of Russians aiming to retain their tax residency status, the regulations are clear: residents must spend at least 183 days within the country over the course of one year. If found to lack residency status, individuals risk being taxed at elevated rates, with personal income tax set at 30% for non-residents. Critics argue the bank's role remains peripheral, stating it is solely the domain of tax authorities to make these determinations, as highlighted by attorney Yuri Pustovit from the Yug Bar Association.
Pustovit suggests there could be operational restrictions on clients' accounts until questions surrounding their tax residency are resolved. If allegations arise indicating someone does not hold residency status, the Federal Tax Service will step in, conducting assessments and imposing relevant taxes on previously incorrectly reported earnings.
With the potential for future legal challenges, many individuals reliant on VPN technology for everyday transactions are now left racing to figure out how to comply with impending requirements. Although the policymakers aim to safeguard the state6s financial interests, the execution and consequences of these regulations remain to be seen.
This development marks not just another chapter of tension between government regulation and personal privacy, but it highlights the rapid evolution of technological assistance versus traditional compliance frameworks. Observers will watch closely as both the Ministry of Finance and banks maneuver through these updates, ensuring efficacy and legality.