How to increase the representative office employee’s income by 24 % without Company’s expenses increase
Since January 1, 2015, representative offices of foreign companies can engage high qualified foreign specialists (HQFSs). Due to this fact, the representative offices have two fair opportunities:
- not to pay salary taxes for their foreign employees and to decrease expenses for such employees by 24 %
- or to increase salaries of their foreign employees by 24 % without Company’s expenses increase.
Who is HQFS?
Foreign employees whose total income exceeds RUB 167 000 per month (about USD 2750 / EURO 2570 at the exchange rate of the Central Bank of the Russian Federation as of the mid-March, 2015) ) are considered as the high quality specialist.
The limit is established by the Federal Law dated 08.03.2015 No.56-ФЗ.
Hereby, the said amount shall include all payments received by the specialist, i. e. salary, bonuses, welfare assistance, gifts etc., i. e., all types of compensations and fees specified in the Labor or Civil Law Contract concluded with the employee.
How it works?
First of all:
Our calculations are best for the foreign employees who have the status of a person temporary staying in the Russian Federation.
If the foreign employee has the temporary resident status, the salary tax savings (or increase of the income) can be not 24 %, but 5 %. In any case, this is quite good too.
However, these provisions are absolutely not applicable to the employees who have the permanent residence permit or Russian citizenship.
At first, we shall estimate the real expenses of the representative office related to the foreign employees who have no HQFS status.
Let us assume that you are a representative office head and your total income is RUB 135 000 per month (i. e. about USD 2.300 / EURO 2.100).
Add the following salary taxes to this amount:
|Foreign employee status (not HQFS)||Pension Pension Fund (PF of RF)||Social Insurance Fund (SIF of RF)||Compulsory Medical Insurance Fund (CMIF of RF)||TOTAL|
|temporary staying person||22%||1,8%||0%||23,8%|
In fact, the expenses for the representative office head (or any other foreign employee) whose income is RUB 135 000 per month are equal to:
- RUB 167.130 per month - for persons temporary staying in the Russian Federation;
- RUB 175.500 per month - for temporary residents of the Russian Federation.
As we can see, the monthly expenses for the employee exceed the RUB 167 000 limit required for obtaining of the HQFS status.
But if the representative office in any case expends this amount on its employee, would not it be better to increase his/her income, to obtain the HQFS status and not to pay salary taxes?
|Foreign high qualified specialist (HQFS) status||Pension Fund (PF of RF)||Social Insurance Fund (SIF of RF)||Compulsory Medical Insurance Fund (CMIF of RF)||TOTAL|
|temporary staying person||0%||0%||0%||
(instead of 23,8%)
|temporary resident||22%||2,9%||0 %||
(instead of 30%)
Then, what about foreign employees, whose income is equal (or exceeds) RUB 167 000 per month?
This situation is even more interesting.
If the base income is RUB 167 000 per month, the expenses of the representative office on such employees shall be:
- RUB 206.746 per month - for persons temporary staying in the Russian Federation;
- RUB 217.000 per month - for temporary residents of the Russian Federation.
If you execute the HQFS status for such employees, the money used for salary taxes can be:
- either saved (due to tax payments decreasing)
- or used for increase of the employee’s income by the corresponding amount without any additional payments (especially for the foreigners temporary staying in Russia).
Since 2015, insurance deductions for payments of foreign employees arrived from Armenia, Belarus and Kazakhstan are imposed according to the same regulations as for incomes of Russian employees. In this case, the foreign employee’s status (temporary staying person or temporary resident) as well as the HQFS status makes no difference. It means: no savings at all.
HQFS status: how to obtain?
The cheering news is that the qualification of the foreign specialist is estimated by the employer. I. e., you shall not prove to the governmental bodies that the employee has the right to obtain the high qualified specialist status, because the documented amount of his/her salary speaks for itself.
The foreign employees of representative offices who have already obtained the valid working permit in Russia, but have not still been HQFSs, shall only obtain new permits with the relevant stamp in the Federal Migration Service of the Russian Federation.
If the engagement of the HQFS is only expected, the employer shall send to the Federal Migration Service of the Russian Federation the application (its form is approved by the Decree of the Governmental of the Russian Federation dated 30.06.2010 No.487), as well as the following documents:
The working permit for the high qualified specialist shall be issued for the period of labor or civil law contract validity, but for not more than 3 years.
Later, this time period can be repeatedly extended for the period of contract validity, but for not more than 3 years for each extension.
You shall also remember that the employer must quarterly notify the Federal Migration Service of the Russian Federation about fulfillment of its obligations related to the payment of the salaries to the foreign citizens, as well as about terminations of Labor Contracts.
Concessionary income tax rate - immediately!
In paragraphs above we have discussed benefits of the foreign representative office from salary taxes savings. Another advantage of the HQFS status is that the employee will be taxed at the income tax concessionary rate not after 183 days of staying in the Russian Federation, but at once.
I. e., in case of the HQFS employment, the representative offices can at once use gross up of 13 % instead of 30 %.
We mean only incomes specified the Labor or Civil Law Contract concluded with the foreigner being the HQFS. All fees paid beyond the labor relations shall be taxed at the rate of 30 % (e. g., the concessionary rate shall not be used for payment of HQFS’ and his/her family members’ expenses related to the travel to the place of resort, residential lease, car parking, medical care, training (education) of the employee and his/her family members, etc.).
We hope that our information is useful for you.
If you have not yet chosen the accounting firm, or consider the engagement of a respectable outsourcing company instead of salaried / visiting accountant, we will be glad to get acquainted with you!
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