RS Brief news “Plus” Pension, “Minus” Contributions

“Plus” Pension, “Minus” Contributions

March 2012

The wage bill in the Russian Federation is subject to both taxes and special contributions, the latter of which make up the budgets of special socially-directed funds, namely retirement, health and social insurance. It would seem, then, that the wages of foreign nationals, who come to Russia to work temporarily, should not be affected by these contributions; however, as of 2012, the rules have changed.

A Brief History

The accrual of social security contributions on employer-to-employee payments in Russia is regulated by several laws. As of 24.07.2009 the most important of these laws has been N 212-FZ, which has long included a general provision enabling the levying of contributions on the wages of foreign employees. However, that same law also contains an exemption from such contributions for those foreign nationals who hold the status of “temporary residents” *. Thus, most organisations to attract foreign executives and specialists from abroad (so-called “expatriates”) were released from the obligation to accrue contributions on their salaries and transfer such contributions to extrabudgetary funds. But late last year, legislators passed a law which, at first glance, seemed to be no more than a number of technical amendments to N 212-FZ. However, companies who hire foreign temporary residents are no longer always exempt from contributions, but only “except as provided” by other laws regarding insurance. These “other laws” were also simultaneously amended, now stating that in some cases temporary residents also have the right to social security and pensions, so contributions should be accrued on their incomes in Russia.

Exceptions to the Rules

What kinds of salaries received by foreign nationals in Russia are subject to contributions, and which are not? Well, the general rule now is that the wages of foreign temporary residents are subject to insurance contributions. However, there are exceptions to this rule. So, if a foreigner is signed to a contract with a duration less than six months, such contributions are not to be accrued on a foreign employee's income. Foreigners working on civil contracts (including copyright and licensing) are also free from contributions, regardless of the duration of their validity. Similarly, regardless of contract duration, contributions should not be accrued on their income in Russia if, according to the documents authorising their work in the Russian Federation, the employees are highly-qualified professionals ** working in their field of expertise.

Foreign Rate

As you can see, there are not many exceptions, and so in 2012 the wages of many foreign workers will be subject to insurance contributions. At the same time, the rate at which contributions will be accrued is still lower than that accrued on payments to Russian citizens. This is because only contributions to finance the insurance part of the labour pension will be accrued on the income of an expatriate. Contributions towards accumulating retirement pay are not required. As well as this, it is not obligatory to contribute to the social security and health insurance fund. Thus, the insurance contribution accrued on incomes of foreign nationals temporarily residing in Russia amounts to 26% (for those born before 1966) or 20% (for those born 1967 or later). For Russian nationals, on the other hand, this rate reaches 34%.

* A foreign temporary resident of the Russian Federation is a person who has arrived in the country on the basis of a visa or possessing the right to enter the country without a visa, having received a migration card but not possessing a residence permit or temporary residence permit.

** For information on who is considered a highly-qualified professional please see "The number of highly skilled foreign nationals in Russia will go up…".