Taxes in Russia vs the US: Key Differences

Russia and the United States represent two world economies with different approaches to taxation. The framework of tax laws in each nation reflects its economic priorities and social structures, creating contrasting systems for individuals and businesses. Understanding these differences is useful for anyone with financial interests spanning both countries. This overview provides a comparative look at key tax categories, highlighting the distinctions between the Russian and U.S. systems.

Individual Income Taxation Comparison

Beginning in 2025, Russia has moved from a flat tax system to a more progressive structure for personal income. The new system introduces a five-tier bracket structure for income such as salaries. Income up to 2.4 million rubles is taxed at 13%, while income between 2.4 million and 5 million rubles faces a 15% rate. The rates continue to climb to 18%, 20%, and a top rate of 22% for income exceeding 50 million rubles.

This structure contrasts with the long-standing progressive tax system in the United States. The U.S. federal government uses a system of tax brackets where income is taxed at increasing marginal rates. As an individual’s income surpasses certain thresholds, the higher income is taxed at a higher rate, not the entire income. This leads to a blended effective tax rate that is lower than their top marginal rate.

An individual’s tax residency status is a determinant for how they are taxed in both countries. Both systems also allow for certain reductions to taxable income, though the mechanisms differ. The U.S. system provides a sizable standard deduction, which is a fixed dollar amount that taxpayers can subtract from their income if they choose not to itemize deductions like mortgage interest. Russia’s tax code also provides for various deductions, though they are often more specific than the U.S. standard deduction. Taxable income in both countries includes salaries, wages, and bonuses, but the specific rules on what is included and what can be deducted vary.

Corporate and Business Taxation

The taxation of corporate profits in Russia and the United States follows different statutory rates and regional considerations. In the United States, corporations are subject to a federal corporate income tax at a flat rate of 21%, established by the Tax Cuts and Jobs Act of 2017. Beyond the federal levy, businesses may also be liable for corporate income tax at the state and local level, with these rates varying across the country.

Russia increased its standard corporate profits tax rate from 20% to 25%, effective from January 1, 2025. This revenue is allocated between the federal and regional budgets. Both countries allow for the deduction of ordinary and necessary business expenses, but the specific rules governing depreciation or the deductibility of certain expenses can diverge. For instance, Russia has introduced incentives for the acquisition of Russian software and research, allowing businesses to deduct more than their actual cost.

Both nations have special tax regimes for certain industries. The U.S. offers various tax credits and deductions aimed at encouraging specific economic activities, such as research and development. Similarly, Russia provides preferential tax rates for specific sectors, such as a 5% rate for IT companies, which is an increase from a previous 0% rate but still significantly below the standard 25%.

Social Security and Payroll Contributions

Both the United States and Russia mandate social contributions to fund public pension and insurance programs, but they structure these payroll taxes differently. In the United States, these contributions are governed by the Federal Insurance Contributions Act (FICA). FICA taxes are split between the employee and the employer and consist of two components: Social Security and Medicare.

For 2025, the Social Security tax rate is 6.2% for both the employee and the employer, for a total of 12.4%. This tax applies only up to an annual income limit of $176,100 for 2025. The Medicare tax is levied at a rate of 1.45% for both the employee and employer, totaling 2.9%, with no income cap.

Russia utilizes a unified social insurance contribution system that is primarily borne by the employer. These contributions cover payments for pension, medical, and social insurance, which includes temporary disability and maternity benefits. The general rate for these employer-paid contributions is 30% on an employee’s annual income up to a specific base limit. For income exceeding this base limit, the contribution rate is 15.1%.

The primary difference lies in who bears the direct financial burden. The U.S. model splits the cost between the employer and employee, making the worker’s contribution explicit. In contrast, the Russian system places the obligation on the employer, meaning the gross salary offered to an employee must account for this additional business cost.

Consumption Taxes VAT vs Sales Tax

The United States and Russia employ different systems for taxing the purchase of goods and services. Russia uses a Value Added Tax (VAT), a broad-based consumption tax common throughout the world. The standard VAT rate in Russia is 20%. This tax is embedded in the final price of most goods and services and is collected at each stage of the supply chain.

The multi-stage collection process allows businesses to receive credits for the VAT they paid on their inputs, which prevents the tax from cascading. For example, a manufacturer pays VAT on raw materials, and a wholesaler pays VAT on the finished goods purchased from the manufacturer. Russia also applies reduced VAT rates, such as 10%, to essential goods like certain foodstuffs, children’s products, and medical supplies.

In contrast, the United States does not have a national VAT. Instead, it uses a system of retail sales taxes that are administered at the state and local levels. This results in thousands of different tax jurisdictions with varying rates and rules. Sales tax is a single-stage tax collected only at the final point of sale to the consumer. Unlike VAT, the sales tax is typically stated separately on the customer’s receipt rather than being included in the shelf price.

Taxation for Expatriates and Foreign Nationals

The tax obligations for individuals living and working outside their home country differ between the United States and Russia. The U.S. employs citizenship-based taxation, meaning all U.S. citizens and green card holders are required to file a U.S. federal tax return and report their worldwide income, regardless of where they live.

Russia uses a residency-based system of taxation. A foreign national who qualifies as a Russian tax resident, by spending 183 or more days in the country in a calendar year, is taxed on their worldwide income. A non-resident foreign national is taxed only on income earned from Russian sources.

While the U.S. and Russia have a tax treaty, its provisions to prevent double taxation were curtailed in 2024 when most of its key articles were suspended. This suspension affects articles that limit taxes on dividends and interest. The primary mechanism for avoiding double taxation for U.S. expatriates is the Foreign Tax Credit (FTC), which allows a U.S. taxpayer to reduce their U.S. income tax liability on a dollar-for-dollar basis by the amount of income taxes paid to a foreign government. A U.S. expat files IRS Form 1116 to claim the credit.

Another tool available to Americans abroad is the Foreign Earned Income Exclusion (FEIE), which allows them to exclude a certain amount of their foreign-earned income from U.S. taxation, set at $130,000 for 2025. Taxpayers must meet specific requirements, such as the bona fide residence test or the physical presence test, to qualify for the FEIE. These provisions ensure that while U.S. citizens have a perpetual filing duty, they are often protected from paying tax twice on the same income.