1. “Payment of apartment rent for employees, including Highly Qualified Specialists (as well as non-residents), is generally subject to Personal Income Tax (PIT). It is considered as the employee’s income in kind (paragraph 1, clause 2, Article 211 of the Tax Code of the Russian Federation, Letters of the Ministry of Finance of Russia dated January 14, 2019, No. 03-04-06/1153, January 23, 2018, No. 03-04-06/3201, January 12, 2018, No. 03-03-06/1/823, October 3, 2017, No. 03-04-06/64421, December 29, 2016, No. 03-04-05/79264).

Exception: If the accommodation is rented for the benefit of the employer, there is no need to subject the rental payment to PIT (clause 3 of the Overview of court practice related to the application of Chapter 23 of the Tax Code of the Russian Federation). This may happen, for example, if the employer sends an employee with special qualifications to another city due to the opening of a branch.

However, in practice, it will be extremely difficult to prove to the tax authorities that the rental of housing is done in the employer’s interest. There is a high probability that the employer will have to defend their position in court to avoid withholding PIT from the employee’s income in the form of rent payment.

The Ministry of Finance’s position is as follows: if the compensation for rental expenses to employees is not in accordance with the legislation but is based on the company’s local regulatory act (order, regulation), labor contract, then such amounts are subject to PIT (Letter of the Ministry of Finance of Russia dated September 8, 2022, No. 03-04-05/87274).”

2. “Taxation of PIT for payments to highly qualified specialists regarding rental housing:

  •  If a foreign employee – a highly qualified specialist – is a resident of Russia, regular rates apply for calculating PIT, including the rental amount for an apartment. The tax is calculated at a rate of 13% (15%) depending on the income level for the tax period.

The 13% rate is applied to the tax base in part not exceeding 5 million rubles, and the 15% rate is applied to the tax base exceeding this amount (clause 3 of Article 210, clauses 3 and 3.1 of Article 224, clause 3 of Article 226 of the Tax Code of the Russian Federation).

  • If a foreign employee – a highly qualified specialist – is a non-resident of Russia, a 30% rate should be withheld for PIT from the income, including rental payments for housing, only if the following conditions are met (Letter of the Ministry of Finance of Russia dated August 7, 2018, No. 03-04-06/55674):
    • The individual is not a resident of Russia.
    • The income is not related to employment activities.

The 13% (15%) rate also applies to income that is not considered salary but is directly related to employment activities, such as vacation pay or compensation for unused vacation days paid upon dismissal (Letters of the Ministry of Finance of Russia dated January 11, 2022, No. 03-04-06/431, December 30, 2021, No. 03-04-06/107871).

Therefore, the 13% (15%) rate is applied to non-resident highly qualified specialists only to income received from employment activities in Russia.

3. All other income is subject to a 30% PIT rate

The Ministry of Finance includes in such income the amounts paid by the company for the employee’s and their family members’ travel costs to the place of rest, rent of residential premises and parking, reimbursement of expenses for medical treatment and education of the employee and their family members, and other similar payments (Letters of the Ministry of Finance of Russia dated June 13, 2012, No. 03-04-06/6-168, December 16, 2014, No. 03-04-06/64843, June 8, 2012, No. 03-04-06/6-158).

Therefore, following the clarifications of the Russian Ministry of Finance, a 30% PIT rate should be withheld (until the foreign employee becomes a resident) for all other income.”

Based on the information provided, our specialists can assist in analyzing existing documents, preparing or adjusting necessary documents, agreements, and mitigating tax risks and consequences.

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