Russia's Tax Laws Causing Headache For Employers Of Expat Workers

by Tatiana Smolenska, for LawAndTax-News.com, Moscow

14 March 2003

According to reports in the national media this week, payment of the Unified Social Tax (UST) on the wages of foreign workers in Russia is proving to be a headache for employers, tax experts, and overseas employees alike.

The UST payments are split between state pensions, compulsory medical insurance and the social insurance fund, and employers were obliged to make payments on behalf of their expat employees from January 1. However, as only foreigners with permanent residency permits are entitled to receive a state pension, many have argued that it is illogical to ask shorter-term expat workers to contribute.

Speaking to the Russia Journal, Jurate Lingiene, manager of the tax and legal department at Deloitte and Touche Moscow explained that difficulties are created for employers as a result of the vague nature of Russian tax law with regard to their obligations:

'The law gives no indication as to where the employing entity should be located, or where renumeration duties should be performed,' she explained, continuing: 'It is not clear whether foreign organizations effecting payments to individuals are considered payers of UST.'

Sergei Vyssotsky, general director of Moscow-based consulting firm, CONSECO Press raised another potentially huge flaw in the country's tax code with regard to the social tax:

'Chaper 24 of the Russian tax code allows the conclusion that the object of taxation of UST for a foreign organization with its tax records in Russia, is all payments to personnel of this organization, including personnel not conducting any activity in Russia whatsoever,' he explained to the Russia Journal.

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