There is still a wide range of countries that are locked down for flights from the Russian Federation (RF) due to COVID-19 and some foreign citizens are unable to get home from the RF. Furthermore, we will consider some issues which may affect tax compliance of these foreign individuals and the companies the employees work for.
There are special provisions stated by Presidential Decree which allow foreign citizens, whose migration documents, such as registration certificates, visas, temporary residence permits, residence permits and migration cards, expire within the period 15 March 2020 – 15 December 2020 to stay in Russia without the need to extend any of the documents listed above.
Another issue to be taken into consideration is the tax residence status of foreign individuals as regards the personal income tax perspective (PIT). In compliance with the Tax Code of the Russian Federation , individuals who are present in the RF for a period exceeding, in aggregate, 183 days over 12 consecutive months should pay PIT from their renumeration and need to file a PIT return in the RF. Recent changes in the TCRF allow for a reduction of these terms from 183 to 90 days upon the written request of the foreign individual. In general, it affects the tax rate and reduces it from 30% to 13%. In the event that the DTTA, between the RF and the employee’s country, establishes 183 days, then, from our point of view, the DTTA will prevail over the TCRF.
Modern technologies and economic digitalisation allow for employees to work remotely (e.g. software development, sales management, research, etc.). Foreign companies (Company) whose employees are stuck in Russia face another issue – permanent establishment (PE) onset. Thus, the Company should examine whether or not the employee carries out work related to doing business in the RF. If so, then it might create risk of PE.
As a brief refresher of TCRF rules, please pay attention to the following criteria : (1) any place for business activity (i.e. the duration of the presence of an employee working for the company exceeds 30 days); (2) regularity of the business activity; (3) type of business activity. Double tax treaty agreements (DTTA) between Russia and foreign countries should be taken into consideration as well as the fact that it might contain other provisions regarding PE (e.g. construction site, etc.).
The next issue which may arise is linked to the abovementioned points (i.e. PE and the tax residence status of a foreign employee). It is related to payment of obligatory social contributions6 which depend on the remuneration and migration status of an employee. In summarising the above, if an employee of a foreign company is stuck in Russia due to COVID-19, the following should be kept in mind:
→ Migration exemptions for foreign individuals are effective until 15 December 2020
→ Possible tax obligations of foreign individuals on PIT and filing PIT returns due to tax residence status
→ Risks of PE of the company and social contributions on remuneration of an employee who is stuck in the RF
With this newsletter we give an overview of recent or expected changes in the area of Global Mobility in different countries.
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