Remote Employees Working Abroad: Must Personal Income Tax Be Withheld In Russia?
The Ministry of Finance of Russia has recently declared that when a labor contract with an employee who is a non-resident of the Russian Federation for remote work abroad, that personal income tax should not be withheld from the salary. Further, it is not necessary to withhold personal income tax from reimbursed business trip expenses for such an employee.
Personal Income Tax and Salary
According to the provisions of Article 209 of the Tax Code, personal income tax is levied:
- from sources in Russia and/or foreign sources for individuals who are tax residents of the Russian Federation;
- from sources in Russia - for individuals who are not tax residents of the Russian Federation.
Remuneration for performance of labor outside the Russian Federation refers to income received from sources abroad (sub-item 6, clause 3, article 208 of the Tax Code of the Russian Federation). Consequently, income received by a non-resident remote employee working abroad is not subject to personal income tax. Note that the employment contract with the remote worker should stipulate that the worker will be performing his/her duties from a workplace abroad.
Personal Income Tax and Travel Expenses
For a remote worker, the place of permanent employment is the place of his location, which is different from the location of the employer or place under the control of the employer (Article 312.1 of the Labor Code of the Russian Federation). A business trip is a trip of an employee on the order of the employer for a certain period of time for the performance of an official assignment outside the place of permanent work (Article 166 of the LC RF). In paragraph 3 of Article 217 of the Tax Code of the Russian Federation it is said that all types of compensation payments established by the current legislation of the Russian Federation are exempt from personal income tax, related, in particular, to the performance of the taxpayer's duties (including reimbursement of travel expenses).
Proceeding from this, the specialists of the Ministry of Finance draw the following conclusion. If a trip by a remote employee to perform an official assignment of an employer is recognized as a business trip, then the amount of reimbursement for such a trip is not subject to personal income tax.
Translated by Alinga Consulting Group.
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