Possibility of remote work abroad, procedure for paying personal income tax and insurance premiums

In the remote work mode, the employee performs work outside the office, and interacts with the employer via the Internet. It does not matter how far from the location of the employer the place of work of the remote employee is located. There are no restrictions in this case, suggesting that the employee can work remotely while abroad.

Is it allowed to conclude an employment agreement with an employee living abroad?

At the moment, it cannot be unambiguously said that this practice is in line with the labor legislation. In particular, the Ministry of Labor does not provide such an opportunity to foreigners or citizens of the Russian Federation who are abroad, referring to the rules of the Labor Code on ensuring safe working conditions for remote workers and Art. 13 of the Labor Code of the Russian Federation, according to which federal laws and other regulatory legal acts of the Russian Federation containing labor law rules are valid only on the territory of the Russian Federation (see Letters dated January 16, 2017 No. 14-2/ООГ-245, dated July 27, 2016 No. 17-3/В-292, dated August 07, 2015 No. 17-3/В-410). Instead of employment agreements, this department recommends that foreigners and citizens of the Russian Federation working abroad conclude civil law contracts for the provision of services.

At the same time, unlike the Ministry of Labor, the Ministry of Finance does not see any difficulties in concluding employment agreements with foreign remote employees (Letters dated March 25, 2016 No. 03-03-06/1/16904, dated April 02, 2015 No. 03-04-06/18203, dated August 04, 2015 No. 03-04-06/44849 and No. 03-04-06/44852).

It is important to remember that the liability of the employer in the event of an employment agreement for remote work with a foreign citizen living abroad is not provided for by the legislation of the Russian Federation.

Based on the analysis of the rules, the position of the Ministry of Labor is more correct from a legal point of view, since in practice it is quite difficult to imagine how the employer should fulfill the obligations to ensure safe working conditions for remote employees, especially those whose place of work is located in other cities (not necessarily abroad).

Thus, since the letters of the departments are not regulatory acts, their points of view on this issue differ, and there is no direct prohibition on concluding an employment agreement for remote work with an individual located outside the Russian Federation, it is still possible to formalize an employment relationship with him/her. This possibility is also provided for by the courts (for example, Appellate Ruling of the St. Petersburg City Court dated June 02, 2020 No. 33-8432/2020 in case No. 2-5677/2019).

Risks of concluding an employment agreement with a person residing abroad

Difficulty in bringing to liability

However, there are certain risks when concluding an employment agreement with a person engaged in labor activities abroad. First of all, the fact is that, while abroad, the employee is not required to comply with the labor legislation of the Russian Federation by virtue of Art. 13 of the Labor Code of the Russian Federation. Therefore, for example, it will be problematic for an employer to hold such an employee liable under the Russian labor legislation. At the same time, the employer itself shall comply with the Labor Code of the Russian Federation.

Denial of reimbursement for sick leave

In addition, there is a risk associated with an accident that can happen to an employee working abroad and its investigation. In this situation, the company may be denied reimbursement for sick leave.

Hiring an employee living abroad

If a foreigner performs work without entering the territory of the Russian Federation, he/she does not need to obtain a work permit in the Russian Federation (patent). The employer, in turn, does not need to notify the migration authorities of the employment of a foreigner. In this case, the employment agreement shall indicate the place of work – the place of permanent residence (foreign state and city).

Personal income tax

The procedure for calculating personal income tax depends on how the place of work is indicated in the employment agreement. If, according to the employment agreement, the employee’s workplace is located in another state, then remuneration for the performance of labor duties is income from sources outside the Russian Federation. In this case, the employee itself shall calculate and pay personal income tax at the end of the tax period, if it is a tax resident. If not, then such income is not subject to personal income tax in the Russian Federation (Subclause 3, Clause 1, Article 228 of the Tax Code of the Russian Federation, Letters of the Ministry of Finance of Russia dated February 25, 2022 N 03-04-05/13207, dated April 20, 2021 No. 03-04-06/29532, dated February 02, 2021 No. 03-04-06/6598, dated November 13, 2020 No. 03-04-05/99086).

If, according to the employment agreement, the employee’s workplace is located in the Russian Federation, then the salary refers to income from sources in the Russian Federation. In this case, personal income tax shall be calculated and paid by the tax agent being the employer (Clause 2, Article 226 of the Tax Code of the Russian Federation, Letters of the Ministry of Finance of Russia dated April 20, 2021 No. 03-04-06/29532, dated February 02, 2021 No. 03-04-06/6598, dated November 13, 2020 No. 03-04-05/99086).

If an employee is sent on a business trip abroad, then the average salary paid to him/her at that time is also income from a source in the Russian Federation. The tax on this income shall be withheld and transferred by the tax agent being the employer (Letter of the Ministry of Finance of Russia dated February 25, 2022 No. 03-04-05/13207).

Insurance contributions

According to Subclause 1, Clause 1, Article 420 of the Tax Code of the Russian Federation, payments and other remuneration in favor of individuals subject to compulsory social insurance in accordance with federal laws on specific types of compulsory social insurance are recognized as the object of imposing insurance contributions for organizations (with the exception of remuneration paid to persons specified in Subclause 2, Clause 1, Article 419 of the Tax Code of the Russian Federation), in particular within the framework of labor relations and civil law contracts, the subject of which is the performance of work, the provision of services.

By virtue of Clause 5, Article 420 of the Tax Code of the Russian Federation, the following shall not be recognized as an object of imposing insurance contributions:

• payments calculated in favor of foreign citizens in connection with their activities outside the territory of the Russian Federation within the framework of concluded civil law contracts, the subject of which is the performance of work, the provision of services;
• payments and other remuneration in favor of foreign citizens under employment agreements concluded with a Russian organization for work in its separate unit located outside the Russian Federation.

For foreign citizens

Foreign citizens working under employment agreements or civil law contracts on the territory of a foreign state and not residing (not staying) on ​​the territory of the Russian Federation are not recognized as the insured in the system of compulsory social insurance in the Russian Federation. That is, payments under such agreements/contracts in favor of foreigners working outside the Russian Federation are not subject to insurance contributions (Letters of the Ministry of Finance of the Russian Federation dated March 31, 2020 No. 03-04-05/25515, dated September 17, 2019 No. 03-04-05/71504).

Thus, the organization does not need to keep records of the amounts of accrued payments and remunerations transferred to foreigners who live and work abroad (do not reside in the territory of the Russian Federation), and reflect the amounts paid to them in the calculation of insurance contributions.

If a civil law contract is concluded with a foreigner, it is necessary to pay insurance contributions in case of injury, if such an obligation is provided for by the contract.

But with regard to foreigners with whom an employment agreement is concluded, it will be necessary to accrue and pay contributions in case of injury, despite the fact that it is unlikely that it will be possible to investigate an accident that occurred to the employee. But in accordance with Federal Law No. 125-ФЗ dated July 24, 1998 “On Compulsory Social Insurance against Industrial Accidents and Occupational Diseases”, individuals with whom employment agreements are concluded, including foreign citizens, are subject to compulsory insurance against industrial accidents and occupational diseases.

For citizens of the Russian Federation

Regarding citizens of the Russian Federation who work abroad, the Ministry of Finance in Letter No. 03-04-06/27827 dated April 14, 2021 noted: citizens of the Russian Federation working under employment agreements, including employment agreements for remote work, are the insured in the system of compulsory social insurance. Therefore, payments and other remuneration accrued by an organization located on the territory of the Russian Federation, within the framework of labor relations in favor of employees who are citizens of the Russian Federation and perform their duties under an employment agreement for remote work outside the territory of the Russian Federation, are subject to insurance contributions in the generally established manner.