Along with the spread of the coronavirus infection, the trend towards remote work is growing throughout the world. Moreover, even now, six months after international traffic was stopped in Russia, some of our citizens remain trapped behind closed borders abroad, and it is almost impossible for foreign employees to enter Russia. What to do if your employee has not been able to return home? How to document and calculate taxes, and is it necessary to pay insurance premiums? Victoria Petukhova, Acsour’s Chief Accountant, has answered these questions for “Raschet” magazine.
The first thing I would like to note is that the employer has no reason to dismiss employees who stay abroad during the pandemic. Moreover, if an employer attempts to use remote means to make an employee redundant, or to dismiss an employee who is on sick leave or on vacation, the court will recognize the dismissal as illegal and will re-register the employee. Thus, the company will have to face significant financial expenses. Since the employees did not embark on the performance of their work duties for a good reason, the employer has to determine and formalize labour relationships for the period during which the employees were staying away from their permanent place of work. Let us have a closer look at the company’s action plan in the event that the pandemic has caught an employee on vacation or on a business trip abroad.
HOW TO DOCUMENT AN EMPLOYEE’S ABSENCE ON VACATION
The Labour Code defines downtime as a temporary suspension of work for economic, technological, technical or organizational reasons. Downtime can affect one employee, a group, or all business subdivisions in an organization. Downtime for reasons beyond the control of the employer and employee is paid for in the amount of at least 2/3 of the tariff rate salary, calculated in proportion to the downtime (article 157 of the Labour Code of the Russian Federation).
HOW TO DOCUMENT AN EMPLOYEE’S ABSENCE ON BUSINESS TRIP
If the secondee did not have time to return to the Russian Federation owing to the measures taken to counteract the pandemic, the employer has to issue an order to extend the business trip. The order will be a justification for the expenses incurred by the employee to pay for housing and to purchase / exchange a ticket, as well as for the payment of per diem allowances.
Apart from the extension of the business trip, the employer can also take advantage of the options with the registration of paid / unpaid vacation, remote work or downtime described above. At the same time, it is necessary to pay attention to accounting issues with respect to the return ticket when vacation is granted immediately after the end of a business trip. In this case, payment for the employee’s travel to the place of work is not economically justified and cannot be included in the expenses that reduce the taxation base for profits tax, and the day of the end of the business trip should be considered the last day before the vacation (Letter No. 03-03-06/3/61516 of the Ministry of Finance of Russia dated October 21, 2016).
After the company has chosen the option of registering labour relationships with an employee working abroad, I propose to study another important issue – the accrual of tax and insurance premiums.
PERSONAL INCOME TAX FROM PAYMENTS TO AN EMPLOYEE ABROAD
To begin with, it is worth mentioning that personal income tax payers are individuals who are tax residents of the Russian Federation (clause 1 of article 207 of Chapter 23 of the Tax Code of the Russian Federation). In turn, a tax resident is an individual who has stayed in Russia for at least 183 days within 12 consecutive months.
In July of this year, the Government amended article 207 of the Tax Code of the Russian Federation, reducing the period of stay in the Russian Federation required for the recognition of tax resident status. To confirm the status of a resident, an individual must stay in the Russian Federation for between 90 and 182 calendar days inclusive during the period from January 1 to December 31, 2020 and must submit a statement to the tax authority in any form not later than April 30, 2021. An employee can submit a statement to the tax authority at his or her place of residence, place of registration (for foreign citizens), or through his or her personal account on the official website.
At the same time, the Tax Code of the Russian Federation has a closed list of cases when leaving the Russian Federation does not interrupt the period for calculating the period of an individual’s stay in the Russian Federation. This means that neither citizenship nor the place of residence affect the status of a personal income tax payer. A Russian citizen can also be a tax non-resident with respect to personal income tax, and the status of a tax resident / non-resident may be changed within a year. Consequently, the amount of the tax rate will change in conjunction with the change in the status.
The Tax Code defines the following rates for income tax: it is 13% for residents, except for the income listed in clause 2 of article 224 of Chapter 23 of the Tax Code of the Russian Federation, and the rate is 30% for non-residents. It should be noted that the deductions listed in Chapter 23 of the Tax Code of the Russian Federation are not applicable to income of non-residents that is subject to personal income tax.
Given that the employer, as a tax agent, is responsible for calculating, withholding, and transferring taxes, as well as for correctly determining the tax status of the recipient of the income, it is in the employer’s interest to monitor the tax status of its employees on each date when income is paid.
If an employee has lost the status of a tax resident during the year, then, according to the legislation, the employer has to recalculate the tax at the rate of 30% from the beginning of the year in which the month falls when the employee became a non-resident.
However, in this case, the amount of tax calculated from the beginning of the year at the new rate will significantly exceed the amount of tax paid at the rate of 13%, and the employee will have a personal income tax debt. What to do to pay the employee’s debt to the budget? There are several options:
If the debt is not reimbursed by the end of the reporting period for personal income tax, the employer is obliged to reflect the amount of non-withheld tax in a certificate drawn up under form 2-NDFL, and the employee will have to submit a declaration drawn up under form 3-NDFL and to pay the remaining amount independently.
IS IT NECESSARY TO PAY INSURANCE PREMIUMS FOR AN EMPLOYEE WHO WORKS ABROAD?
According to the Tax Code, payments and other remuneration in favour of individuals who are subject to statutory social insurance in accordance with federal laws on specific types of statutory social insurance are considered to be subject to insurance premiums.
Citizens of the Russian Federation are insured parties under compulsory pension insurance, compulsory health insurance, and statutory social insurance for temporary disability and maternity (clause 1 of article 7 of Federal Law No. 167-FZ, clause 1 of article 10 of Federal Law No. 326-FZ, and sub-clause 1 of clause 1 of article 2 of Federal law No. 255-FZ). Therefore, the employer is obliged to accrue and pay insurance premiums regardless of the place of work of an employee who is a citizen of the Russian Federation.
If the employer has entered into a labour contract / supplementary agreement for remote work with a foreign citizen who does not have the migration status of permanently or temporarily residing in the Russian Federation, insurance premiums are not accrued. In this case, the foreigner will not be considered an insured person, which means that there is no item on which insurance premiums can be accrued.
Please note: the labour contract (or a supplementary agreement to it) concerning remote work must contain information about the place of work outside the Russian Federation where the remote employee directly performs his or her obligations under the labour contract.
ACCIDENT INSURANCE PREMIUMS
In order to ensure safety and the protection of labour, the Labour Code obliges the employer to provide employees with statutory social insurance against industrial accidents and occupational diseases (article 312.2 and article 212 of the Labour Code of the Russian Federation).
Similarly to the Tax Code, Federal Law No. 125-FZ defines payments and other remuneration accrued by policyholders in favour of insured persons under labour relationships or civil law contracts as the subject to insurance premiums for industrial accidents and occupational diseases (“IAOD contributions”).
Both citizens of the Russian Federation and foreigners are recognized as insured citizens in accordance with Federal Law 125 (clause 2 of article 5 of Federal Law No. 125-FZ). At the same time, there is no territorial exception in the Federal Law for foreign or remote employees.
Although in practice it is extremely difficult to apply the provisions of this Federal Law on providing insurance for a remote employee, the employer is obliged to accrue and transfer to the state budget IAOD contributions for all employees without reference to their place of work and citizenship.
The issue of the registration of labour relationships with employees who remained abroad became an unexpected and non-standard task for employers in the first half of 2020. If the employer can independently choose a balance between ensuring the continuity of business processes and the interests of employees to resolve the issue of the registration of labour relationships, then when calculating taxes and contributions, it is necessary to proceed from the following special aspects: