The issue of legal regulation of remote work has been in the air starting from 2020: the beginning of changes was caused by the restrictive measures introduced to prevent the spread of coronavirus infection. Then, owing to the sanctions imposed on the Russian Federation, there was a massive relocation of Russian business to other states. A number of citizens also decided to leave the country and work remotely.
The main legislative instrument for monitoring remote working mode in Russia is the updated version of Chapter 49.1 of the Labour Code of the Russian Federation, which entered into force on January 1, 2021. But the question of the lawfulness of the registration of labour relationships with remote working employees living outside of Russia remains open.
Today, there is no direct prohibition on such a form of labour in the Labour Code of the Russian Federation. However, in a letter No. 14-2/OOG-5755 dated September 9, 2022, the Ministry of Labour expresses the opinion that concluding an employment contract with a citizen of the Russian Federation on remote work outside Russia is not permissible, since this option of cooperation contradicts Russian legislation, in particular, labour protection standards, and entails serious risks for the Russian employment market. In the event of such situations, it is recommended to interact with employees within the framework of civil law relationships.
Other ministries and departments do not share the position of the Ministry of Labour and consider it possible to conclude an employment contract on remote work for working abroad. The same views are held by the Russian courts. The existing case history is still not in favour of the Ministry of Labour.
For example, the district court of the Zhiguli Municipal Court of the Samara region (case No. 2-104/2021 dated March 18, 2021) explicitly stated that it did not agree with the employer that the presence of a remote working employee outside the Russian Federation during the performance of work duties is prohibited. After all, the purpose of the mechanisms for regulating remote work introduced by the legislator is to exclude the territorial subordination of the employee to the employer.
The Commercial (‘Arbitration’) court of the North Caucasus District, in its Resolution No. F08-10403/2020 dated December 24, 2020, also concludes that citizens living abroad are not deprived of the right to a remote employment format in a company located in the Russian Federation. The same opinion is held by the St. Petersburg Municipal Court in its Appellate Ruling No. 33-8432/2020 dated June 2, 2020.
If an employer is going to conclude an employment contract with an employee who plans to perform their function outside of Russia, it is worth paying attention to the following aspects of such cooperation.
THE METHOD OF TRANSFERRING SALARY
The procedure for payment of remuneration for the work performed is established by the parties in the employment contract, or the employee prescribes a convenient option in the application.
If the employee is a currency resident of the Russian Federation working for a Russian company, then it is possible to transfer the salary exclusively in rubles and to a Russian account. Therefore, we advise the employee to think in advance about methods to withdraw salary credited to the Russian card. After all, the possibility of calculating or withdrawing funds from bank cards issued in the Russian Federation is limited in many countries owing to sanctions imposed by foreign banks.
For an employee working in a foreign branch or representative office of a Russian company, the salary can be credited to a foreign bank account. This opportunity is also available to currency non-residents of the Russian Federation.
PAYMENT OF INCOME TAX OF AN EMPLOYEE LOCATED ABROAD
The procedure for transferring income tax depends on the place of work and tax status.
When specifying Russia as the place of work in the contract, income tax is paid by the employer as a tax agent. As long as the employee has the status of a tax resident of the Russian Federation, the tariff of 13% will be applied (15% – from income over 5,000,000 rubles). As soon as an employee becomes a non-resident (has been abroad for more than 183 days), all income for the calendar year in which the non-resident status was acquired is recalculated at a rate of 30%.
If the place of work specified in the contract is a foreign country, then payments will be recognized as income from sources outside the Russian Federation. Accordingly, the employer is not recognized as a income tax agent. The employee has to pay income tax on their own. If by the end of the year an employee acquires the status of a tax non-resident of the Russian Federation, then the obligation to pay income tax to the Russian budget is removed from them. The accountant has to recalculate the income earned in Russia from the beginning of the calendar year until departure at a rate of 30%.
Therefore, as soon as the employee informed the company about the move, the employer should find out the tax status of the employee as soon as possible. And, if necessary, recalculate income tax at the rate of 30%.
It happens that an employee working remotely moved abroad without informing the employer, and in the employment contract the place of work is still the Russian Federation. In such a situation, it is important to react in time and adjust the accrual of agency income tax in order to prevent penalties and fines. It is a mistake to believe that the Federal Tax Service will not detect the location of the employee. The tax authorities have established interdepartmental communication with the migration service.
If the employee is not going to return, but plans to keep the job subject to the consent of the employer, we recommend to reissue the employment contract with the current date, register a foreign country as the place of work and stop withholding income tax. Also, the employer should study the requirements of foreign internal regulatory documents regarding the presence in this circumstance (the place of work is a foreign state) of signs of a separate subdivision of a foreign legal entity and the need for its tax registration in a foreign state.
As soon as an employee acquires the status of a tax resident in the country of residence, there may be an obligation to pay local tax. On all issues of tax legislation in the country of residence, it is necessary to consult with local specialists in advance.
PAYMENT CONCERNING SICK LEAVE TO AN EMPLOYEE ABROAD
In accordance with the legislation of the Russian Federation, temporary disability allowance can be accrued only on the basis of a sick leave issued by a Russian medical institution. If an employee has taken a sick leave in a foreign clinic, in order to receive payments from a Russian employer, it is required to reissue a disability certificate in a hospital in Russia.
According to clause 17 of the Procedure approved by the Order No. 1089n of the Ministry of Health dated November 23, 2021, an employee has the right to confirm temporary disability with medical documents of a foreign sample. But in order to receive allowance, it is necessary to legalize the documents, make a notarized translation and replace them with a Russian disability certificate. The decision is made by the medical commission.
In practice, taking into account the location of the employee, the legalization of a foreign sick leave looks difficult to implement. Therefore, to resolve the issue, the employer can pay the employee financial aid in the amount of the allowance. In this case, it is not required to legalize foreign documents.
REPORT ON REMOTE WORKING EMPLOYEES TO THE EMPLOYMENT SERVICE
With the introduction of the remote mode of work, the legislator obliged companies to provide reports on remote working employees, including those who work from abroad, to the employment service. The need for the introduction of reporting that appeared in 2022 is associated with the operational monitoring of the state of the Russian labour market.
That is, in cases of changing the employment regime or hiring a new employee for remote work, the employer is obliged to submit information to the employment service in the form of the Ministry of Labour (letter No. 14-2/OOG-2304 of the Ministry of Labour dated April 8, 2022). The report should reflect information about the organization of remote work, indicating the number of remote working employees.
GROUNDS FOR DISMISSAL OF AN EMPLOYEE WORKING ABROAD
It often happens that a conflict situation between an employer and a remote working employee owing to an employee's refusal to return to the Russian Federation leads to the inevitability of the latter's dismissal. Apart from the main reasons for termination of labour relationships provided for by the Labour Code of the Russian Federation (for example, by agreement of the parties, by written application of the employee, layoffs, etc.), an employment contract with a remote working employee may be terminated under Article 312.8 of the Labour Code of the Russian Federation, which provides the following reasons for dismissal:
1. The employee does not get in touch
It is possible to use this basis if an employee without valid excuse does not get in touch for more than two consecutive working days, provided that the company's internal regulatory document does not prescribe a longer period of absence.
2. The employee changed the locality of the performance of the job function, and this led to the impossibility of fulfilling the obligations under the employment contract on the same terms*
For example, a specialist is responsible for sales in the North-Western District of Russia, and moved to another country.
On this basis, it can be said that it is possible to dismiss a remote working employee who has gone abroad, but not in any situation and not for absenteeism. It is actually impossible to prove non-appearance, because a remote working employee, as a rule, does not have a fixed workplace, and they have the right to work wherever it is convenient for them. In order to exclude the occurrence of controversial points between the company and the remote working employee regarding the grounds for the dismissal of the latter, we recommend to carefully consider and specify the following in the employment contract at the drafting stage:
Employers need to approach the issue of the work of an employee from abroad individually, weighing all the advantages and possible risks for business, since today there is no unambiguous practice on this issue, and the opinions of ministries and departments do not coincide. Acsour is ready to provide legal advice on the remote work of your employees abroad, as well as provide legal support in the development of internal regulatory documents and employment contracts for remote working employees.
* - clause 2 is applied to employees working remotely on a permanent basis. Those who were temporarily transferred to the "remote working mode" cannot be dismissed according to part 2 of article 312.8 of the Labour Code.
The main legislative instrument for monitoring remote working mode in Russia is the updated version of Chapter 49.1 of the Labour Code of the Russian Federation, which entered into force on January 1, 2021. But the question of the lawfulness of the registration of labour relationships with remote working employees living outside of Russia remains open.
Today, there is no direct prohibition on such a form of labour in the Labour Code of the Russian Federation. However, in a letter No. 14-2/OOG-5755 dated September 9, 2022, the Ministry of Labour expresses the opinion that concluding an employment contract with a citizen of the Russian Federation on remote work outside Russia is not permissible, since this option of cooperation contradicts Russian legislation, in particular, labour protection standards, and entails serious risks for the Russian employment market. In the event of such situations, it is recommended to interact with employees within the framework of civil law relationships.
Other ministries and departments do not share the position of the Ministry of Labour and consider it possible to conclude an employment contract on remote work for working abroad. The same views are held by the Russian courts. The existing case history is still not in favour of the Ministry of Labour.
For example, the district court of the Zhiguli Municipal Court of the Samara region (case No. 2-104/2021 dated March 18, 2021) explicitly stated that it did not agree with the employer that the presence of a remote working employee outside the Russian Federation during the performance of work duties is prohibited. After all, the purpose of the mechanisms for regulating remote work introduced by the legislator is to exclude the territorial subordination of the employee to the employer.
The Commercial (‘Arbitration’) court of the North Caucasus District, in its Resolution No. F08-10403/2020 dated December 24, 2020, also concludes that citizens living abroad are not deprived of the right to a remote employment format in a company located in the Russian Federation. The same opinion is held by the St. Petersburg Municipal Court in its Appellate Ruling No. 33-8432/2020 dated June 2, 2020.
If an employer is going to conclude an employment contract with an employee who plans to perform their function outside of Russia, it is worth paying attention to the following aspects of such cooperation.
THE METHOD OF TRANSFERRING SALARY
The procedure for payment of remuneration for the work performed is established by the parties in the employment contract, or the employee prescribes a convenient option in the application.
If the employee is a currency resident of the Russian Federation working for a Russian company, then it is possible to transfer the salary exclusively in rubles and to a Russian account. Therefore, we advise the employee to think in advance about methods to withdraw salary credited to the Russian card. After all, the possibility of calculating or withdrawing funds from bank cards issued in the Russian Federation is limited in many countries owing to sanctions imposed by foreign banks.
For an employee working in a foreign branch or representative office of a Russian company, the salary can be credited to a foreign bank account. This opportunity is also available to currency non-residents of the Russian Federation.
PAYMENT OF INCOME TAX OF AN EMPLOYEE LOCATED ABROAD
The procedure for transferring income tax depends on the place of work and tax status.
When specifying Russia as the place of work in the contract, income tax is paid by the employer as a tax agent. As long as the employee has the status of a tax resident of the Russian Federation, the tariff of 13% will be applied (15% – from income over 5,000,000 rubles). As soon as an employee becomes a non-resident (has been abroad for more than 183 days), all income for the calendar year in which the non-resident status was acquired is recalculated at a rate of 30%.
If the place of work specified in the contract is a foreign country, then payments will be recognized as income from sources outside the Russian Federation. Accordingly, the employer is not recognized as a income tax agent. The employee has to pay income tax on their own. If by the end of the year an employee acquires the status of a tax non-resident of the Russian Federation, then the obligation to pay income tax to the Russian budget is removed from them. The accountant has to recalculate the income earned in Russia from the beginning of the calendar year until departure at a rate of 30%.
Therefore, as soon as the employee informed the company about the move, the employer should find out the tax status of the employee as soon as possible. And, if necessary, recalculate income tax at the rate of 30%.
It happens that an employee working remotely moved abroad without informing the employer, and in the employment contract the place of work is still the Russian Federation. In such a situation, it is important to react in time and adjust the accrual of agency income tax in order to prevent penalties and fines. It is a mistake to believe that the Federal Tax Service will not detect the location of the employee. The tax authorities have established interdepartmental communication with the migration service.
If the employee is not going to return, but plans to keep the job subject to the consent of the employer, we recommend to reissue the employment contract with the current date, register a foreign country as the place of work and stop withholding income tax. Also, the employer should study the requirements of foreign internal regulatory documents regarding the presence in this circumstance (the place of work is a foreign state) of signs of a separate subdivision of a foreign legal entity and the need for its tax registration in a foreign state.
As soon as an employee acquires the status of a tax resident in the country of residence, there may be an obligation to pay local tax. On all issues of tax legislation in the country of residence, it is necessary to consult with local specialists in advance.
PAYMENT CONCERNING SICK LEAVE TO AN EMPLOYEE ABROAD
In accordance with the legislation of the Russian Federation, temporary disability allowance can be accrued only on the basis of a sick leave issued by a Russian medical institution. If an employee has taken a sick leave in a foreign clinic, in order to receive payments from a Russian employer, it is required to reissue a disability certificate in a hospital in Russia.
According to clause 17 of the Procedure approved by the Order No. 1089n of the Ministry of Health dated November 23, 2021, an employee has the right to confirm temporary disability with medical documents of a foreign sample. But in order to receive allowance, it is necessary to legalize the documents, make a notarized translation and replace them with a Russian disability certificate. The decision is made by the medical commission.
In practice, taking into account the location of the employee, the legalization of a foreign sick leave looks difficult to implement. Therefore, to resolve the issue, the employer can pay the employee financial aid in the amount of the allowance. In this case, it is not required to legalize foreign documents.
REPORT ON REMOTE WORKING EMPLOYEES TO THE EMPLOYMENT SERVICE
With the introduction of the remote mode of work, the legislator obliged companies to provide reports on remote working employees, including those who work from abroad, to the employment service. The need for the introduction of reporting that appeared in 2022 is associated with the operational monitoring of the state of the Russian labour market.
That is, in cases of changing the employment regime or hiring a new employee for remote work, the employer is obliged to submit information to the employment service in the form of the Ministry of Labour (letter No. 14-2/OOG-2304 of the Ministry of Labour dated April 8, 2022). The report should reflect information about the organization of remote work, indicating the number of remote working employees.
GROUNDS FOR DISMISSAL OF AN EMPLOYEE WORKING ABROAD
It often happens that a conflict situation between an employer and a remote working employee owing to an employee's refusal to return to the Russian Federation leads to the inevitability of the latter's dismissal. Apart from the main reasons for termination of labour relationships provided for by the Labour Code of the Russian Federation (for example, by agreement of the parties, by written application of the employee, layoffs, etc.), an employment contract with a remote working employee may be terminated under Article 312.8 of the Labour Code of the Russian Federation, which provides the following reasons for dismissal:
1. The employee does not get in touch
It is possible to use this basis if an employee without valid excuse does not get in touch for more than two consecutive working days, provided that the company's internal regulatory document does not prescribe a longer period of absence.
2. The employee changed the locality of the performance of the job function, and this led to the impossibility of fulfilling the obligations under the employment contract on the same terms*
For example, a specialist is responsible for sales in the North-Western District of Russia, and moved to another country.
On this basis, it can be said that it is possible to dismiss a remote working employee who has gone abroad, but not in any situation and not for absenteeism. It is actually impossible to prove non-appearance, because a remote working employee, as a rule, does not have a fixed workplace, and they have the right to work wherever it is convenient for them. In order to exclude the occurrence of controversial points between the company and the remote working employee regarding the grounds for the dismissal of the latter, we recommend to carefully consider and specify the following in the employment contract at the drafting stage:
- The location of the work. Otherwise, it will not be possible to prove that the new location prevents the execution of the contract on the same terms.
- The specific functions and tasks of the employee that they are obliged to perform when working abroad.
- Employee-specific conditions. For example, working hours, linked to your time zone. If a remote working employee cannot work on the same terms after moving owing to a large timing difference, this may be ground for dismissal.
- As well as other conditions: the employee's obligation to inform the employer about the change of residence address / moving to another country or the loss of the status of a tax resident of the Russian Federation, methods of monitoring the employee's activities, etc.
Employers need to approach the issue of the work of an employee from abroad individually, weighing all the advantages and possible risks for business, since today there is no unambiguous practice on this issue, and the opinions of ministries and departments do not coincide. Acsour is ready to provide legal advice on the remote work of your employees abroad, as well as provide legal support in the development of internal regulatory documents and employment contracts for remote working employees.
* - clause 2 is applied to employees working remotely on a permanent basis. Those who were temporarily transferred to the "remote working mode" cannot be dismissed according to part 2 of article 312.8 of the Labour Code.
