Relocation – features of remuneration for an employee working abroad.
In recent years, particularly during the coronavirus period, many have adapted and switched to remote working. In some cases, the specific of the employee’s work allows for remote working.
Formalising the contractual relationship with the employee
On the one hand, labour law allows for the remote working, however, according to the Ministry of Labour, cooperation with employees located in another country should still be carried out within the framework of a civil law relationship (letters dated 07.07.2015 No 17-3/B-410 and dated 16.01.2017 No 14-2/OG-245).
In this connection, the first thing to do is to sign an civil contract with an employee moving to another country and to make sure that the place of work is indicated in the contract, as this will determine who must pay personal income tax on behalf of the employee.
Peculiarities of tax residency when working abroad
Please note that the tax residency/non-resident status depends on the actual presence in the country. After 183 days after leaving Russia, the employee will lose their tax residency status and, as a result, the personal income tax rate will change. A tax rate of 30% instead of 13% (15% of the amount exceeding 5 million roubles) applies to non-resident income.
If you continue to pay personal income tax at the 13/15% rate after losing your residency status without informing the tax authority of the change in tax status, there is a risk that this will be discovered, which could lead to penalties.
It is therefore advisable to specify in the agreement with the employee in advance that he/she will report his/her tax status every six months.
Who has to pay tax depends on the place of work stated in the contract. If it is Russia, then the employer pays the tax for the employee. If the place of work is in another country, the employee pays personal income tax for himself.
Insurance contributions for Russian citizens are transferred regardless of their location, as they are insured in the social, pension and health insurance fund. The situation is similar with citizens of the EAEU countries. If the performer (employee) is not a Russian citizen, insurance contributions are not paid for him/her.Difficulties with the payment of remuneration to an employee
When transferring money to an employee who is abroad, some complications can arise, in particular
– Russian bank cards (Visa, Mastercard) are not accepted abroad;
– MIR bank cards are accepted only in several banks of the countries where they are serviced;
– difficulties may arise in transferring funds from a Russian bank account to a foreign bank account;
– restrictions in choosing currencies for settlements.
To transfer funds, you can use money transfer systems, through an agent company. It is also possible to send money from a Russian bank account to a foreign account via SWIFT; however, a number of banking institutions do not have this option due to sanctions imposed.