If a company invites a nonresident employee to work, it is not uncommon for the company to provide the employee with housing. These costs often run to a significant amount and, obviously, the company will be interested in having them properly attributed as expenses for the reduction of the company's profit tax base.
Conditions for Expensing the Employee's Rent
For an organization to properly account for the cost of an employee's rented housing, two conditions must be met:
- The provision of housing to an employee must be provided for in the employment contract;
- the amount of rent, as income in kind, should be an integral part of the employee's salary
If the organization compensates the employee directly for rent paid directly by the employee to the lessor for housing, then such payments are not considered compensation for labor and thus such payments cannot be accounted for in profit tax calculations. This position is expressed in Letters of the Federal Tax Service of Russia and the Ministry of Finance of the Russian Federation.
The following documents are needed to confirm the organization's costs in paying for employee housing:
- an employment contract that provides for the payment of the employee's housing;
- the housing lease;
- payment order for the transfer of rent.
Accounting for Housing Payments for Tax Purposes under the General Taxation System (OSNO)
Payments made in kind cannot exceed 20% of the total monthly wage. Therefore, the organization's declared expenses for employee housing can be accounted for only up to that amount which does not exceed 20% of the employee's monthly salary, taking into account bonuses and allowances, provided that this is stipulated in the employment contract.
Accounting for Housing Payments for Tax Purposes under the Simplified Taxation System (USN)
When calculating the single tax as paid under the simplified taxation system, organizations expense labor costs from income. At the same time, labor costs are accounted for in the same manner as they are when calculating corporate profit tax.
Therefore, organizations using simplified taxation can expense employee housing costs as salary in kind when determining the tax base. The expense claimed cannot exceed 20% of the total monthly salary of the employee it is paid to, taking into account bonuses and allowances. Additionally, the provision of employee housing must be stipulated in the employment contract.
Personal Income Tax on in Kind Employee Income
When determining the tax base for personal income tax, all income received by the employee is taken into account, both in cash and in kind. Income received in kind includes payment (in whole or in part) made by an organization on behalf of the employee for goods, labor, services, or property rights received. Therefore, salary paid to the employee in kind, in the form of provided employee housing (rent paid), is subject to personal income tax in accordance with the generally established procedure.
The organization, regardless of its tax system, is a tax agent for personal income tax. Thus, the organization is obliged to calculate, withhold, and pay to the state the personal income tax owed. The tax base for calculating personal income tax, in this case, is the amount of rent paid by the organization for an employee. The personal income tax rate with income in kind is the same as for wages in cash.
The date of receipt of income in kind is the date of the payment for rent was made to the lessor. Personal income tax on wages paid in kind can be withheld from cash wage payments made to the employee.
Insurance Contributions Made for Employee Income in Kind
The amount of rent paid by the organization for provided employee housing is subject to insurance contributions in accordance with the generally established procedure, as payment for labor.
Translated by Alinga Consulting Group.
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