Russia payroll and tax overview.

Stretching from Eastern Europe to Asia, Russia is the largest country in the world by territory and one of the largest by population. Russia shares borders with 16 other countries, including Norway, Finland and Poland to the west, Belarus, Ukraine, and Georgia to the south, and Mongolia, China, and North Korea to the southeast. Russia’s coastline runs from the Barents Sea to the Pacific Ocean where it shares a maritime border with the United States. Russia is an influential political and economic power with a 2019 GDP of $1.6 trillion and a growth rate of 1.3%. Russia is moving from a globally-isolated, centrally-planned economic model towards a market-based and globally-integrated economy. That progress has slowed recently, however, leaving Russia with a partially-reformed, statist economy with a high concentration of wealth in the hands of officials. 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 not as competitive on world markets and is geared toward domestic consumption while the country’s reliance on commodity exports makes it vulnerable to boom and bust cycles that follow swings in global prices. Russia is a member of the UN, the G20, APEC, and the WTO and, in 2019, was ranked 28 on the World Bank’s Ease of Doing Business Survey.

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 economic modernisation and infrastructure development agenda, underpinned by 140 million consumers' appetite for quality services and goods, produces a need for international expertise and products.

Registering a Company and Establishing an Entity in Russia

Establishing an 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 entity 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 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:

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, the 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 (Russian Rouble).

As per the different payment options in the 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 vary from 9am - 6pm on weekdays and from 9am - 3pm on Saturdays. Sunday is the weekly holiday.

What Are the Working Days and Working Hours in Russia?

The standard working week in Russia is 40 hours, typically from 9am to 6pm, Monday to Friday. Employees are entitled to a one-hour unpaid break every day.

Most offices are closed at the weekend.

Basic Facts about Russia

General

Full Name: Russian Federation

Population: 144.4 million (World Bank, 2019)

Capital: Moscow

Major Language: Russian

Currency: Russian Rouble

Main Industries: Oil & natural gas

Internet Domain: .ru

International Dialing Code: +7

The rate of income tax in Russia ranges from 0% to 35%. 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 1 January – 31 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 to these flat rates.

An employer as a tax agent shall calculate the personal income tax, withhold it from the employee and transfer it to the budget.

Following the results of the tax period, certificates according to Form 2 - NDFL are to be provided to the tax authorities. Starting from annual reporting for 2021, Form 2 - NDFL is part of the 6 - NDFL tax report.

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. From 2021, the incremental rate of personal income tax of 15% is applied when the annual income is above 5 million Roubles.
• 30%: On income received by tax non-residents on the territory of the Russian Federation,
• 35%: On certain kinds of income, and 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.

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 zashity / Министерство труда и социальной защиты).

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.

Starting from January 1st, 2022 all the sick leave certificates are provided by medical institutions in electronic form only.

Social security rates are 30% deducted as an employer cost. To support Russian business during the COVID-19 pandemic, the President and the Government of the Russian Federation introduced special temporary measures, namely the reduced insurance rates of 15%, these are applied to industries affected by the pandemic in cases and under conditions determined by law.

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 the birth of a 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 transfer.

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.

New Employees in Russia

All new employees should be registered with the Pension Fund by the employer (when the employee wasn’t registered in a previous job) within the first 10 days of joining.

The documents required for registering the new start are -

1. Copy of Passport
2. Copy of Pension Certificate
3. Document by Form 182-N from the Previous Employer (Calculation of Sick Lists)
4. Labour Contract

For expat new starts, the passport, signed contract and work permit are required.

From April 2020, employers should submit the SZV-TD form to the Pension Fund in cases of hiring and termination. This should be submitted no later than one working day following the day of issuance of the hire/termination order. In other cases (such as transfer to another position, etc.) SZV-TD is submitted on the 15th day of the next month.

Work Leavers in Russia

All leavers should get their final salary on their last day of employment.

The tax authorities should be informed of the non-citizens finishing their employment contracts.

The payroll is normally run in RUR but can be run in local or other currencies should the client require.

A mid-month advance payment is paid in Russia as per the Russian Labour Code.

Payslips are produced in either English or Russian.

Documents related to payroll are stored from five to 75 years.

The statutory reporting to the authorities is stored for five years.