Savings: PIT, insurance premiums
Legal grounds: Article 207 paragraph 2 and Article 208 paragraph 3 of the Tax Code; Chapter 49.1 of the Labor Code; Article 7 paragraph 1 of the Federal Law #212-ФЗ from July 24, 2009.
When a company enters into a labor contract with a remote employee (Article 49.1 of the Labor Code) who is not a tax resident of Russia and conducts his activity outside of Russia, then payments to this employee are not subject to insurance payments or PIT.
For PIT purposes, tax non-residents are persons residing in Russia less than 183 days during 12 consecutive months (Article 207 paragraph 2 of the Tax Code). Compensation for work conducted by tax non-residents is classified as profits received from sources outside of Russia (Article 208 paragraph 3 of the Tax Code, MinFin Letter #03-04-05/24895 from June 28, 2013). Therefore, these payments are not subject to PIT. Also, tax non-residents are not insured for purposes of mandatory pension, medical, and social insurance (Article 7 part 1 of the Federal Law #212 from July 24, 2009; Article 7 paragraph 1 of the Federal Law #167 from December 15, 2001; Article 10 of the Federal Law #326 from November 29, 2010).
However, it is important to keep in mind that in this case the remote employee residing outside of Russia for over 183 days per year becomes subject to taxes of his country of residence and is obligated to pay profit tax according to local legislation.
Tax experts believe this method of tax optimization will not generate disputes with auditors. Fiscal authorities do not see anything illegal in this method. Most important, an employee must be tax non-resident and conduct his work outside of Russia.
At the same time, it is very important to keep track of the remote employee’s tax status. It is determined based on the number of days the person in fact resided in Russia during 12 consecutive months (Article 207 paragraph 2 of the Tax Code).
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