The personal income tax rate in Russia is one of the most attractive in the world due to the comparatively low rate of 13 percent. There is however requirements that must be met in order to have a status of tax resident within Russia and to be applicable for the tax rate of 13 percent.
When a company decides to employ a foreign citizen two situations are possible. If the person already has a temporary residence permit for Russia, a company would enter into a labor or civil contract with the individual. And in case the employing company itself invites the foreign citizen from abroad.
Then, before employing the foreign citizen the company has to take the following steps: to obtain from the Federal Employment Service permission to employ foreign citizens; to obtain from The Federal Migration Service permission regarding the quantity of foreign citizens that can work in the organization; to receive a Permit to employ foreign citizens which is valid for one year and stipulates how many foreign citizens can be employed and their positions within the organization. After the payment of State levies for each foreign employee it is necessary to obtain work permits for each of them. Having all above mentioned documents gives a company the right to employ foreign citizens for one year. Each year all documents should be prolonged.
An important question for a company and an employee is the residential status of the employee in the territory of the RF for tax purposes. The individual income tax rate for tax residents is 13% and for tax non-residents it is 30%.
To become a "Tax Resident" as defined by the Russian Tax Code the individual must be present in Russian territory for a period of no less than 183 calendar days within 12 consecutive months.
The actual presence of the individual in the Russian territory begins the day after the arrival to Russia. Dates of departure and arrival of the individual to and from the territory of the RF are confirmed by stamps in the passport of the individual by immigration officials. If the passport stamps are absent, any documents certifying actual quantity of days of stay of the individual in the territory of Russia can be accepted. If the individual travels outside Russia for short periods (less than six months) for studying or medical treatment these periods are counted towards the 183 days. All other reasons for traveling outside Russia are not included.
A foreign citizen who starts employment at the beginning of the year can be recognized as a tax resident if on Jan. 1 the foreign citizen has a residence permit in Russia. Hence, the employer can consider at once such an employee as a tax resident and accordingly withhold personal income tax at the rate of 13 percent.
If a foreign citizen who at the beginning of the year has been recognized as a tax resident and has resigned and left Russia before 183 days has passed then in this case the tax should be recalculated at the higher rate of 30 percent.
Can tax residence status change during the year? Such examples could be:
If the person leaves Russia for more than 183 days and then returns that person would lose the status of tax resident and would be subjected to the higher rate of personal income tax at 30 percent until tax residence status can be started again based on the rules described above.
If at the beginning of employment the expatriate is in Russia for less than 183 days the personal income tax is charged at the rate of 30 percent until the term of stay reaches "residence". From this month and further the foreign employee then pays the 13 percent tax rate.
In both cases the final amount of personal income tax should be recalculated for all months of the tax period in which the tax raised under the "wrong" rate.
Recalculation of personal income tax related to the changes of the tax residence status should be done after the tax period has expired or from the date after which the tax residence status of the individual would not be revised.
Revision of the tax residence status of the individual is made at the following dates: the date of actual end of stay of the foreign citizen in Russia in the current calendar year; the date following the day of expiration of 183 days of stay in Russia of the Russian or foreign citizen; the date of permanent departure of the citizen from Russia.
The tax recalculation is made from the beginning of the tax period in which there was a change in the tax residence status of the individual.
Based on the final calculation of personal income tax, the tax declaration should be prepared and submitted by the employer or employee or BPO provider to the local tax authorities by April 30 of the year following the expired tax period. In the latter case, BPO providers bear full legal responsibility for these documents and you can rest assured that the accounting function is performed in full compliance with the requirements of tax and labor legislation.
When a company decides to employ a foreign citizen two situations are possible. If the person already has a temporary residence permit for Russia, a company would enter into a labor or civil contract with the individual. And in case the employing company itself invites the foreign citizen from abroad.
Then, before employing the foreign citizen the company has to take the following steps: to obtain from the Federal Employment Service permission to employ foreign citizens; to obtain from The Federal Migration Service permission regarding the quantity of foreign citizens that can work in the organization; to receive a Permit to employ foreign citizens which is valid for one year and stipulates how many foreign citizens can be employed and their positions within the organization. After the payment of State levies for each foreign employee it is necessary to obtain work permits for each of them. Having all above mentioned documents gives a company the right to employ foreign citizens for one year. Each year all documents should be prolonged.
An important question for a company and an employee is the residential status of the employee in the territory of the RF for tax purposes. The individual income tax rate for tax residents is 13% and for tax non-residents it is 30%.
To become a "Tax Resident" as defined by the Russian Tax Code the individual must be present in Russian territory for a period of no less than 183 calendar days within 12 consecutive months.
The actual presence of the individual in the Russian territory begins the day after the arrival to Russia. Dates of departure and arrival of the individual to and from the territory of the RF are confirmed by stamps in the passport of the individual by immigration officials. If the passport stamps are absent, any documents certifying actual quantity of days of stay of the individual in the territory of Russia can be accepted. If the individual travels outside Russia for short periods (less than six months) for studying or medical treatment these periods are counted towards the 183 days. All other reasons for traveling outside Russia are not included.
A foreign citizen who starts employment at the beginning of the year can be recognized as a tax resident if on Jan. 1 the foreign citizen has a residence permit in Russia. Hence, the employer can consider at once such an employee as a tax resident and accordingly withhold personal income tax at the rate of 13 percent.
If a foreign citizen who at the beginning of the year has been recognized as a tax resident and has resigned and left Russia before 183 days has passed then in this case the tax should be recalculated at the higher rate of 30 percent.
Can tax residence status change during the year? Such examples could be:
If the person leaves Russia for more than 183 days and then returns that person would lose the status of tax resident and would be subjected to the higher rate of personal income tax at 30 percent until tax residence status can be started again based on the rules described above.
If at the beginning of employment the expatriate is in Russia for less than 183 days the personal income tax is charged at the rate of 30 percent until the term of stay reaches "residence". From this month and further the foreign employee then pays the 13 percent tax rate.
In both cases the final amount of personal income tax should be recalculated for all months of the tax period in which the tax raised under the "wrong" rate.
Recalculation of personal income tax related to the changes of the tax residence status should be done after the tax period has expired or from the date after which the tax residence status of the individual would not be revised.
Revision of the tax residence status of the individual is made at the following dates: the date of actual end of stay of the foreign citizen in Russia in the current calendar year; the date following the day of expiration of 183 days of stay in Russia of the Russian or foreign citizen; the date of permanent departure of the citizen from Russia.
The tax recalculation is made from the beginning of the tax period in which there was a change in the tax residence status of the individual.
Based on the final calculation of personal income tax, the tax declaration should be prepared and submitted by the employer or employee or BPO provider to the local tax authorities by April 30 of the year following the expired tax period. In the latter case, BPO providers bear full legal responsibility for these documents and you can rest assured that the accounting function is performed in full compliance with the requirements of tax and labor legislation.
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