07.06.07

When hiring foreigners for work in branch offices abroad, Russian companies are obligated to pay a Uniform Social Tax of their salaries, but these workers are not given use of free medical services and do not receive pensions. Deputies and government officials have promised to eliminate the unfairness.

The Tax Code (TC) obligates companies to pay UST from all salaries paid both to Russian and foreign personnel. This also includes those who work in branches and representative offices abroad. Where the money goes in such cases, no one knows, since foreign employees do not claim pension coverage, nor medical coverage or social benefits in Russia. According to the law on work pensions, it is only available for foreigners residing in Russia.

Besides UST companies also pay international analogue taxes for their employees. Before 2003, companies did not pay UST from the payments to foreigners who did not hold rights to pension, social benefits and medical service from the State. It included foreign employees of Russian companies regardless of whether they worked abroad or in Russia. Later this amendment was removed, and now payments to Russians and foreigners are charged the same social tax. It is an absurd provision of the law, but it is stated in TC, and companies must obey it. TC does not link UTS payments to the right to social or medical service or pension benefits. Many companies have tried to take legal action against it but the courts have taken the company's side only in very rare occasions. 

Deputies have decided to attend to this question. Amendments to TC were approved at the first reading allowing payments to foreign personnel of branch offices to be exempt from UTS. Foreigners working in Russia companies will still be charged social tax. These foreigners have a right to receive pension benefits in Russia if they hold a residence permit.

Experts are certain that UTS charges can be avoided if foreigners are employed as personnel provided by a foreign company rather than by service contract. This, however, creates the danger of allowing companies the opportunity to bend the law to their benefit. For example, some may try to employ all their personnel as foreign representatives. If their employees will be working in Russia the courts will take the side of tax authorities.

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