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Crossing B orders : Foreign assignment of Russian national employees

Crossing B orders : Foreign assignment of Russian national employees. Carolyn Leslie Senior Manager October 2009. Overseas deployment structuring options.

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Crossing B orders : Foreign assignment of Russian national employees

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  1. Crossing Borders: Foreign assignment of Russian national employees Carolyn Leslie Senior Manager October 2009

  2. Overseas deployment structuring options • We often caution employers bringing foreign workers to Russia that ‘secondment in Russia does not comply with the tax, immigration and labor legislation’. • However, with more and more Russian and multinational employers sending Russian employees overseas, the structuring of employment for those leaving Russia may be more flexible. Termination of Russian employment agreement and conclusion of new employment agreement with foreign employer Unpaid leave of absence (Russian employment suspension) and new employment agreement with foreign employer Business trips – long or short term ‘Split’ employment Secondment from Russia

  3. Secondment structure Home Company / continuous employer Salary Fee under the agreement Secondment/Agencyagreement Labor contract (addendum) Host company Employee Secondment

  4. Secondment: advantages

  5. Secondment: key employee personal income tax issues • Home Host • Tax withholding after employee departure • Resident periods at 13% • No withholding if non-resident and income is not Russian sourced (or30% if Russian sourced) Withholding may apply, even if individual remains on Russian payroll Filing tax return for the employee Double Tax Treaty relief (short secondments) Foreign tax credit Tax registration/return filing obligations

  6. Secondment: social taxes rules before and after 1 January 2010

  7. Secondment: new social taxes in detail

  8. Secondment: key legal and corporate tax aspects

  9. Secondment: remuneration structuring Alongside the flexibility to choose carefully structured and implemented secondment, Russian employers sending workers overseas can select a remuneration structure according to business needs, and potentially implement it in compliance with labour law, tax withholding, social tax and corporate tax obligations.

  10. Secondment: compensation package • Equalisation of host living standards to Russian level • Includes: • Salary and secondment allowances (eg. COLA) to ensure the same level of buying capacity as at home • Housing (provided or reimbursed) and living expenses in host country • Hypothetical deductions equal to Russian personal income tax, and possibly also housing, etc. • Expensive option for employer, particularly if tax (and/or social tax) is higher at host location. • Ensures comparable salary to local employees in local currency at host • No equalisation expense for the employer to bear • Fair compensation according to job position and location, regardless of level of compensation in Russia • Easy to explain and administer • If Russian employer delivers remuneration, potential ‘double-withholding’ and/or dual social tax costs • Often used for permanent employee transfers • buying capacity may be reduced • Low motivation for employees to accept transfer if host local salary low Home country approach Host country approach

  11. Secondment: compensation package • Ensuring the same level of net income in host country as in home country • Net income is calculated first and then ‘grossed up’ as per the tax rates in host country • If the employee continues to pay taxes in home country, this approach may prove difficult due to ‘double withholding’ in year at home and host • May require reconciliation of tax obligations of the employee/employer and subsequent discussions • Identify social tax position in each jurisdiction – possible duplication • Preservation of salary in home country • Equalisation of compensation package such that savings remain in home country and cost of living is incurred in host country • Employee/employer obliged to determine the part of compensation to be received in home and host countries, and adjust overall salary to achieve desired outcome • Payment of living and housing expenses in host country • Employer should consider legal requirements in both home and host countries • Consider home/host withholding and tax positions for employers and employee (double withholding unlikely) • Identify social tax position in each jurisdiction – possible duplication Net-to-net Combined approach (part-equalisation)

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