RS In our opinion ‘Hospitality’ of Russian taxes

‘Hospitality’ of Russian taxes

March 2011

Highly skilled foreign nationals pay 13% income tax in the Russian Federation

Amendments to the Russian law regarding the status of Highly Skilled Professionals as a new category of foreign specialists working in Russia were adopted only last year. The 13-percent tax rate should apply to the remuneration paid to highly-skilled professionals. The same income tax rate applies to citizens of Russia.

This step was taken to make Russia a more attractive place for foreign specialists. As assumed by RF President Dmitry Medvedev, these professionals might contribute to the implementation of plans for the country’s accelerated modernisation. In his message to the Federal Assembly, the President focused on the necessity of attracting to Russia those who specialise in commercialisation of research results as well as other highly skilled specialists. Therefore, the procedures required for obtaining a work permit in the Russian Federation should be simplified as much as possible.

This step was taken to make Russia a more attractive place for foreign specialists

“Changes in laws were highly appreciated by our foreign partners and businesses. It was an expected response because draft amendments to relevant laws were prepared in close cooperation with representatives of the companies which operate and invest in the Russian economy. We took into consideration their needs,” explained Yekaterina Yegorova, Deputy Director of the RF Federal Migration Service.

What does ‘highly skilled’ mean in Russia?

Initially, according to the Law of the Russian Federation, those foreign nationals who:

  1. possess the required experience, skills or achievements in a specific field and
  2. will receive at least RUB 2 million (EUR 50 000) per year (365 days) as salary (remuneration) according to employment terms in the Russian Federation (employment agreement, contract etc.), could qualify as highly skilled professionals.

However, by the end of 2010, the term ‘highly skilled professional’ was significantly extended. This category included foreign scientists and teachers invited to the country for research and teaching purposes by state higher educational institutions, state academies of sciences or their regional divisions, national research centres. Foreign nationals from this category should earn at least 1 million Russian rubles (25,000 euros) annually. Those foreign nationals who are involved in the Skolkovo Project (Russian alternative of Silicon Valley) will be qualifies as highly skilled professionals regardless of the remuneration amount. These changes came into force on February 15, 2011 (Federal Law no. 385-FZ as of December 23, 2010).

Skills will be evaluated by the employer

Employers or principals will be responsible for assessment of the professional level of foreign nationals and will have to consider all relevant risks.

Professional skills of a foreign citizen may be proven by any documents containing, for example:

  • the person's employment history, including references from other employers and principals (both domestic and foreign),
  • information provided by the recruiters,
  • information about the results of the foreign citizen’s intellectual activities,
  • information about professional awards and other forms of recognition of professional achievements,
  • information about the results of competitions held by the employer or the principal,
  • other unbiased, true and verifiable documents and information.
Employers or principals will be responsible for assessment of the professional level of foreign nationals and will have to consider all relevant risks

Who may employ non-residents?

The Russian laws allow employment of highly skilled specialists by organisations which in the last two years have not been subject to administrative penalties for illegal use of foreign labor. Such organisations can be:

  1. Russian commercial organisations,
  2. innovative organisations including those in the field of professional training,
  3. branches of non-resident corporate bodies.

Yekaterina Yegorova explains, “Offices of foreign companies will obtain such a right based on a policy of reciprocity according to international treaties.”

Benefits for highly skilled foreign professionals

Highly-skilled professionals will be applied the same income tax rate as residents of Russia. According to the amendments of the Tax Code of the Russian Federation, starting on July 1, 2010, incomes of non-residents who qualify as highly skilled professionals will be taxed at 13% rate regardless of the period of the foreign citizen’s employment in the Russian Federation.

For information purposes: Incomes of foreign nationals who do not belong to the ‘highly skilled professionals’ category will be taxed in the Russian Federation regardless of the citizen’s status (clauses 1,3 of article 224 of the Tax Code of the Russian Federation). A tax resident (who has stayed in the Russian Federation for the total period of more than 183 days during the 12 consecutive months) will pay 13% income tax and a non-resident (who has stayed in the Russian Federation for less than 183 days) will pay 30% income tax.

“Applying lower income tax rates to highly skilled professionals will help to attract foreign nationals with experience in innovative activities. It may help to develop new industries and businesses, which are quite common in the global market, for the Russian market while also improving the competitiveness of Russian organisations in the domestic and global markets,” assumes Elena Kozlova, Chief Tax Advisor for ICLC Audit Company.

Besides, highly skilled professionals will be able to use the special registration procedures in Russia which leads to a decrease in the companies’ costs connected with employment of such specialists. Highly skilled foreign professionals may be employed by Russian organisations regardless of the quotas set for foreign workforce. This rule does not apply to sales workers. They will continue to be subject to the government’s quotas. Preachers cannot be included in the “highly skilled specialists” category as well.

Highly skilled professionals will be able to use the special registration procedures in Russia which leads to a decrease in the companies’ costs connected with employment of such specialists

Invited foreign highly skilled specialists will receive a visa for a 3 year period and this visa may be extended for 3 more years for an unlimited number of times. They do not have to wait for 1 year (like other non-residents) in order to obtain a residence permit in Russia. Visas and residence permits will be automatically issued and extended to members of the highly skilled professional’s family, which includes not just spouses and children (including adopted children), but also the children’s spouses and parents (including adopted parents), parents’ spouses, grandparents and grandchildren.

Highly skilled professionals may change employers without the need to leave the Russian Federation.

Like RF citizens, highly skilled foreign professionals should register with the migration service within 90 days of entry. However, when traveling in the Russian Federation, highly skilled professionals need to be registered with the migration service within 30 days. The period of processing of employment related documents for highly skilled professionals is 2 weeks, which is two times faster than it was before.

Employers will be responsible for medical insurance of the invited foreign highly skilled professionals and their family members. Employment agreements should contain relevant clauses.

Please be aware that the migration authorities will register highly skilled professionals (as well as all other non-residents) only at the residential property address. Mrs. Yegorova explains, “The inviting party also participates in this process if they entered into the residential property lease contract with the landlord. According to this contract, the company may notify migration services about registration of the invited specialist at the rented property’s address. The landlord is also welcome to inform the migration service about registration of a non-resident. We believe that non-residents’ rights will not be jeopardized. This issue was discussed with representatives from the chambers of commerce from the United States, France, Germany and the European Business Association and full understanding on this issue was reached.”

The future belongs to sports!

Last December, draft amendments were proposed for consideration to the State Duma. According to these amendments, athletics, sports organizations and clubs should also be able to employ highly skilled professionals. Since the amendments were proposed by Vladislav Reznik, Chairman of the Financial Market Committee, his deputy Yury Isayev and Vladimir Pligin, Chairman of the Constitutional Law Committee, who represent the ruling political party Yedinaya Rossiya (United Russia) in the lower house of the State Duma, we have all reasons to believe that these amendments will be passed.

Other changes are likely to follow. Since the Russian economy is in need of serious innovations, the procedures for employment of highly skilled foreign professionals will be further simplified in the years to come.

Andrei Susarov,
Tax columnist for the Moscow news
Exclusively for Russian Survey RS