What Taxes Apply If A Russian Company Pays Salary To A Foreigner Abroad?
In a recent letter, (#03-04-06-02/189 from September 7, 2007), the Ministry of Finance clarified how the Uniform Social Tax (UST), personal income tax and mandatory pension insurance contributions must be paid for a foreign employee working abroad. In the same letter, MinFin explained how to account for payments of profit tax that may apply in the above situation.
UST and pension insurance requirements seem logical and clear: pay UST, don’t pay pension insurance. As for personal income tax, if the employee is a tax resident (has lived in Russia for more than 183 days), 13% income tax must be paid. If the employee has spent less than 183 days in Russia for the year, no tax payment is necessary.
Regarding profits, tax officials state that when a foreign citizen is employed by a Russian company by a labor agreement, or when a foreigner (not registered as individual entrepreneur) provides services for a Russian company on the basis of a civil law contract, then salary expenses paid to that employee are to be considered tax deductable.
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