Russia payroll and tax overview.

Russia is moving from a globally-isolated, centrally-planned economy towards a more market-based and globally-integrated economy, but stalling as a partially reformed, statist economy with a high concentration of wealth in officials' hands, Russia is one of the world's leading producers of oil and natural gas and is also a top exporter of metals such as steel and primary aluminium.

Russia's manufacturing sector is generally uncompetitive on world markets and is geared toward domestic consumption. Russia's reliance on commodity exports makes it vulnerable to boom and bust cycles that follow the volatile swings in global prices.

Foreign Direct Investment in Russia

Russia is a fast growing major export market with favourable cross-sector opportunities, some unique in scale. The government's economy modernisation and infrastructure development agenda, underpinned by 140 million consumer's appetite for quality services and goods, produces a need for international expertise and products.

Registering A Company and Establishing an Entity In Russia

Establishing a LLC (Limited Liability Company) is a relatively simple and inexpensive procedure in Russia. That is why the LLC is considered the most common form of legal entities in RF.

It normally takes between 4-6 weeks to set up a Legal Entity in Russia.

To recruit from overseas, Russian employers must be registered with the Ministry of Ethnic and Migration Policy and FMS in order to invite foreign employees.

Once the legal entity has been established and in order to process payroll, the following registrations to the tax and/or social security authorities are required:

• Tax Inspectorate of Federal Tax Agency in Moscow - registers an organization within 5 working days after the filing.
• Pension Fund of the Russian Federation, Social Insurance Fund of the Russian Federation, Statistics Fund of the Russian Federation - within 5 days from the date of entry of the data on an organization, tax inspectorate sends the information to the funds. The funds will then register the organization within 3 days.
• The necessity of registration with the Centre for Workplace Quotas depends on the regional legislation. For Moscow – an organization submits documents to the Centre for Workplace Quotas within one month after registration with the tax authority. 

Business Banking In Russia

It is mandatory to have an In-Country Bank account to set up a payroll in Russia.

Salary payments, transfer of taxes and contributions are made in the currency of the Russian Federation (in roubles).

As per the different payment options in this country for being able to make payments to the employee and/or authorities, payment order is the most popular (both for employees and authorities). In some cases employees can get salaries in cash.

Banking hours varies from 9am - 6pm on weekdays and from 9am - 3pm on Saturdays and Sunday is the weekly holiday.

Working Week And Working Hours In Russia

The standard working week in Russia is 40 hours, typically from 9:00 am to 6:00pm Monday to Friday. Most of the offices are closed on the weekends.

Basic Facts about Russia

General

Full name: Federation of Russia

Population: 143,700,000

Capital: Moscow

Major Languages: Russian

Currency: Russian ruble (RUB)

Main Industries: Oil & Natural Gas

Internet Domain: .Ru

International Dialling Code: +7

The rate of income Tax in Russia ranges from 0% to 35%. The Russian income Tax is a progressive Tax, which means that the average Tax rate (i.e., the ratio of Tax and Taxable income) increases in ratio with increasing taxable income.

The Tax Year runs from 1st of January – 31th of December.

Social Security contributions are payable in respect of individuals engaged under employment or civil contracts, to the following four funds: -

• Pension Fund of the Russian Federation (Pensionnyi Fond Rossiyiskoy Federatsii / Пенсионный фонд Российской Федерации)
• Social Insurance Fund (Fond Sotsialnogo Strahovanyia Rossiyiskoy Federatsii / Фонд социального страхования Российской Федерации)
• Federal Obligatory Medical Insurance Fund
• Local Obligatory Medical Insurance Fund

Income Tax In Russia

The basic rate (nalogovaya stavka / налоговая ставка) for personal income tax is 13 % for residents and 30% for non-residents. There are exceptions from these flat rates.

An employer as a tax agent shall calculate the personal income tax, withhold it from the employee and transfer to the budget. Following the results of the tax period, certificates according to Form 2 - NDFL are to be provided to the tax authorities.

Taxes are deducted from the employee’s salary and remitted to the authorities on a monthly basis. Personal Income Tax is paid on the date of the salary transferring to the employees.

Rates of Income Tax

The Tax Rates for Personal Income Tax are the following:

• 13%: On Income received by Tax Residents
• 30%: On Income received by Tax Non-Residents on the territory of the Russian Federation
• 35%: On certain kind of income
• 6% - on income in the form of dividends

An individual who is a Non-Resident of the Russian Federation may be exempt from taxation by the Russian Tax Authorities, provided that he/she introduces (forwards) to the Russian Tax Authorities an official confirmation that he/she is a resident of the state that has double taxation treaty with the RF.

It is also important to note that if the organization pays for the lease of apartments for its foreign employee, the latter shall pay personal income tax at the rate of 13% or 30% depending on the period of time the employee resides on the territory of the Russian Federation.

Personal Income Tax is paid on the date of salary transferring to the employees.

Illegal non - withholding and (or) non - transferring (incomplete withholding and (or) transferring) of tax amounts within the time limits set by the Tax Code shall entail a penalty of 20% of the amount subject to withholding and (or) transferring. Not meeting the deadline set by the legislation will attract a penalty. This amount is an accrual for every calendar day the payment is overdue in the amount equal to one three-hundredth of the refinancing rate.

Social Security In Russia

The social security system in Russia is the responsibility of the state and the main government agency dealing with it is the Ministry of Labour and Social Protection (Ministerstvo truda i socialnoy zashite / Министерство труда и социальной защите).

Only Russian citizens are eligible for all types of governmental support. The exception is emergency healthcare, which is accessible to everyone in the country on humanitarian grounds.

Social Security rates are 30% deducted as an employer cost.

There are no employee deductions for Social Security in Russia.

Social Security payments cover the following:

• Medical Care
• Sickness Payments
• Insurance
• Care for disabled individuals
• Maternity leave
• Parental leave
• Compensations on birth of child

An employer is obliged to accrue insurance contributions for payments for the benefit of an employee and transfer them to the budget.

Following the results of the reporting period, reports according to Form RSV-1, 4-FSS are to be submitted. Insurance contributions shall be transferred no later than the 15th day of the following month. Insurance contributions for injuries shall be transferred on the date of salary transferring.

Non-payment or incomplete payment of insurance contributions shall attract a penalty of 20% of the unpaid amount of the insurance contributions. If the non-payment is intended the penalty is 40%.

Late payment of tax will attract a penalty for every calendar day overdue, in the amount equal to one three-hundredth of the refinancing rate.

The responsibility to pay insurance contributions falls entirely on the employer, regardless of an individual's Tax status. Although this responsibility increases beyond Russian employers to include foreign companies, there is no mechanism for foreign companies to pay insurance contributions in the absence of a Russian representative office or branch. Failure to pay insurance contributions may result in penalties. 

Workplace quotas

The obligation to pay and provide reporting is governed by regional legislation.

Reporting Tax In Russia

Quarterly / Monthly Reports:

Form P-4 "Information About the Number and Wages of Employees"

• The form contains information about the number of employees & payments for a reporting year
• To be submitted to the local office of the Federal State Statistics Service.
• If the average number of employees is less than 15 people – this report should be submitted quarterly, no later than the 15th day after the reporting period. (If the average number is more than 15 people - monthly no later than on the 15th day after the reporting period.)
• Can be submitted by the payroll company under a power of attorney
• Has to be signed by the Client

Form P-4 (PTW) "Information About Part - Time Work and Movement of Employees"

• Information about the number of employees hired, dismissed, etc.
• To be submitted to the local office of the Federal State Statistics Service quarterly no later than on the 8th day after the reporting quarter
• Can be submitted by the payroll provider under a power of attorney
• To be signed by the Client