IPMI Magazine Expatriate Life, Travel Insurance, Private Medical and Health Insurance News LONDON, 3 October 2011. Russia is considered by many foreign professionals to be an attractive place to work for a number of reasons, including career and salary opportunities, the relatively low rate of personal income tax, and the absence of progressive taxation. At the same time, however, one hears that the procedures for bringing expatriates to Russia and certifying their legal status tend to be bureaucratic, onerous, and time-consuming. Over the past few years, the Russian president and government have announced plans to form an international financial center in Russia and adopt measures to promote foreign investment. Now, the government has taken steps to make Russia’s business environment more attractive to foreign investors.
The Ministry of Economic Development of the Russian Federation has developed, together with the Federal Migration Service, a number of significant amendments to “migration” legislation to facilitate the hiring of certain categories of foreign specialists. These amendments (hereinafter, the “Law”) were signed into law on 19 May 2010 1 and came into effect on 1 July 2010.
In this article, we outline the most important changes to Russian migration and tax legislation and clarify the new procedures. Qualifying as a Highly-Skilled Professional The Law introduced a new category of foreign specialist: highly-skilled professional. Under the Law, a foreign specialist is considered highly-skilled if he or she obtained work experience and skills in a particular area and his or her professional activity in Russia is remunerated with an annual gross salary of not less than RUB 2,000,000 (approximately USD 65,574).
Depending on the specifics of the Russian economy, the remuneration requirement for highly-skilled professionals may in future be reduced by the government of the Russian Federation. It is worth mentioning that this minimum level of salary for highly-skilled professionals must be paid locally and under a local employment contract — any salary paid outside of Russia will not count under the Law.
Currently, the level of salary under the Law is the only criterion used to classify an individual as a highly-skilled professional under the simplified rules. The relevant experience, competency, and levels of qualification of highly-skilled professionals will be evaluated solely by employers at their own discretion and risk.
Who Can Employ Highly-Skilled Professionals
Although the list of potential Russian employers of highly-skilled professionals is fairly extensive, not all categories of employers are eligible for this benefit. In particular, Russian lawmakers did not include in this list the representative offices of foreign legal entities and organizations engaged in professional religious education.
Highly-skilled professionals can be employed by: Russian for-profit legal entities Russian scientific organizations professional education institutions, other than institutions engaged in professional religious education health-care institutions other organizations engaged in scientific, technical, and innovation-based activities, experimental development, testing, and the training of personnel in accordance with state priorities in developing the scientific and technological spheres within the Russian Federation — if they have been accorded state accreditation in the instances required by law branches of foreign legal entities accredited in Russia.
Employers are eligible to apply for employment of highly-skilled professionals, if they have not been subject to administrative penalties for illegally employing foreign citizens for the two years immediately preceding an application to employ highly skilled professionals.
Innovations for Highly-Skilled Foreign Professionals
The standard work permit application process can be protracted and somewhat onerous, consisting of several stages (application for consent to hire foreign labor from the labor authorities, application for a corporate work permit, and application for an individual work permit from the migration authorities). As a rule, it takes more than three months to obtain an individual work permit from start to finish. The new rules for employing highly-skilled professionals are far simpler and more beneficial for both employers and highly-skilled employees.
In terms of the procedure, highly-skilled expatriates are not subject to certain migration requirements, including the two initial stages of the work permit application process, leaving only the individual work permit application, which is expected to take at most 14 work days. The new procedure includes the following benefits:
The quota system does not apply to highly-skilled professionals
The work permits may be valid for up to three years, including the possibility of repeated extensions, as long as the specialist has a valid employment contract
If it is expected that the highly-skilled professional will work in more than one Russian region, the work permit can be issued for multiple regions.
The work permit for highly-skilled professionals grants an additional benefit to these professionals: it can serve as the basis for the receipt of a Russian permanent residency permit for both the individual professional and family members. Moreover, a residency permit must be issued by the migration authorities further to a corresponding request from the highly-skilled professional — the professional only needs to submit a written application to the state migration authorities. The state migration authorities must process the application within 14 business days of the submission of a corresponding application.
Obligations of Russian Employers Hiring Highly-Skilled Professionals
In addition to the above benefits, Russian employers also assume certain obligations in respect of the highly-skilled professionals that they employ, including, inter alia: providing highly-skilled professionals and accompanying family members in Russia with voluntary medical insurance (this condition must be stipulated in the employment agreement with the highly-skilled professional) providing the migration authorities with confirmation that the highly-skilled professional has registered with the Russian tax authorities within 30 days of obtaining the work permit notifying the Russian migration authorities on a quarterly basis of the salary amounts paid to highly-skilled professionals, as well as instances where employment contracts with highly-skilled professionals were terminated or where they were provided with unpaid vacation for more than one month per year. However, if an employer is found guilty of defaulting on its obligation under the contract with the highly-skilled professional, then the employer will be unable to employ this category of employee for two years as of the moment when the migration authorities become aware of such a violation. Thus, employers should vigorously adhere to their obligations under existing contracts with highly-skilled professionals.
Reduced Income Tax Rate for Highly-Skilled Professionals
In Russia, the general personal income tax rate depends on an individual’s tax residency status as determined by his or her physical presence in Russia for 183 days over a 12-month period. The general income tax rate for Russian tax residents is 13 percent, while for individuals considered nonresidents for tax purposes in Russia it is 30 percent. The Law applies the tax rate of 13 percent to the employment income of highly-skilled professionals, irrespective of their Russian tax residency status. The 13-percent tax rate should apply to the remuneration paid to highly-skilled professionals under local contracts. Highly-skilled professionals will also be eligible for personal income tax deductions from their taxable income, which, under the general rule, are not allowed for tax nonresidents.
Although the new Law does not satisfy all the desires of international companies doing business in Russia with regard to lowering costs and increasing competitiveness, it is now significantly easier to bring assignees to Russia and formalize their status once in the country. The new rules and the flexibility demonstrated by the authorities — especially the Federal Migration Service and Ministry of Economic Development — demonstrate the real intention of the Russian authorities to ease administrative burdens and simplify the lives of both employers and the highly-skilled foreign professionals coming to Russia.
It can only be hoped that these amendments represent just the first step toward generally making Russia a more attractive, competitive, and comfortable place for international businesses and their foreign personnel. Footnote: 1 Federal Law No. 86-FZ dated 19 May 2010 “On Amendments to the Federal Law ‘On the Legal Status of Foreign Citizens in the Russian Federation’ and Certain Legislative Acts of the Russian Federation”. by Alevtina Borisova and Roman Gerebtsov, KPMG, Moscow (KPMG in Russia is a KPMG International member firm)
IPMI Magazine Expatriate Life, Travel Insurance, Private Medical and Health Insurance News LONDON, 3 October 2011.