The regulation of employment in Russia is governed by the Labor Code of the Russian Federation which applies equally and must be complied with by both executives and employees. Russian labour laws apply to foreign nationals and foreign businesses in Russia in the same manner as domestic entities. Making employment decisions in Russia must be made with full compliance to the Labor Code, as all regulations related to minimum guarantees, employment benefits and compensation supersedes any agreement between the employer and employee. It is recommended that professional legal advice be sought when employing in Russia due to these stringent rules.
Russian legislation on taxes for foreign companies operating in Russia is relatively straightforward in that profits generated by foreign legal entities in Russia in most cases are taxed at the same profit tax rates for Russian taxpayers. The main forms of taxation that a foreign employer must be aware of include: Corporate Profit Tax, Income Tax, VAT, Social Security Rates and Withholding Tax among others.
The process of employing foreign nationals in Russia typically requires the worker to be issued a work visa for entry into Russia, a work permit held by the employee and an employer permit held by the company, and an employment agreement between the employer and worker. The Russian immigration system for foreign workers is regulated by a Federal quota for foreign employees which restricts the number of work permits issued.The Russian employment system also has in place rules that prioritize highly skilled specialists over regular foreign workers.
There are broadly two categories of business forms for foreign companies in Russia when establishing a legal entity, which are setting up a new Russian legal entity or through the subdivision of a foreign company. Of these two categories there are four methods of incorporation. Each of these business forms has distinct advantages and disadvantages, as well as differing scope of business activities, registration requirements and minimum capital requirements. In most cases, it will depend on the degree of commitment a company has to Russia and the planned business activity.
When setting up a company in Russia, the following options are available:
Companies entering Russia must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities. A GEO or Russia Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a Russian entity established that can run payroll.
A DIY approach will typically take 6-9 months until there is a properly incorporated WFOE ready to run payroll and cost up to 6 figures if registered capital is required. Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.
|Management Fee for Employer of Record Services / Monthly Payroll Costs||
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Shield GEO pays the employee on a monthly basis, typically on the last working day of the month although we can adapt to your preferred schedule. Income tax and social security (where applicable) are deducted at source and paid to the local tax authorities.
|Tax Returns Supplied||
|Corporate Tax Requirements||
Russian companies forming groups with more than 90% direct ownership may file for a consolidated tax return if the company in the previous calendar year has:
Annual profits tax return is filed every year by 28th March.
|Employers Social Security and statutory contributions||
Social Security Rate is tax charged to companies related to labour income. They are in the form of social contributions to the pension fund, social insurance fund and mandatory medical insurance funds.
Social Security Rate (Employers): 30%
|Employees Social Security and statutory contributions||
Employees are not required to contribute to social security as it is made by the employer. However, voluntary contributions may be made by individuals.
Social Security Rate (Employees): 0%
|Corporate Income Tax Rate||
The corporate tax rate in Russia ranges from 15.5 – 20%
2% is payable to the federal budget and 18% payable to the regional budgets. Regional authorities may lower it to 13.5% at their discretion.
Applies to all individuals and companies importing goods into the Russian Federation.
VAT rate: 18% for taxable sales of most goods, work and services.
Under Russia’s double taxation treaties, certain classes of income paid to non-residents apply.
Dividends: Dividends paid to a foreign entity or to a non-resident individual are subject to a 15% withholding tax, unless the rate is reduced via a tax treaty.
Interest: Interest paid to a non-resident is subject to a 20% withholding tax, unless the rate is reduced via a tax treaty.
Royalties: Royalties paid to a non-resident is subject to a 20% withholding tax, unless the rate is reduced via a tax treaty.
Property Tax: Up to 2.2% where tax base is calculated as the depreciated book value. This is administered under the local legislation as a regional tax.
Land Tax: 0.3% for cadastral value of land that is used for agricultural, residential or private farming purposes. 1.5% of the cadastral value of other land.