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Not so long ago it was considered that labor taxes in Russia are the lowest among world’s major economics. But the Government came up with the Strategy for the Long-term Development of the Russian Pension System with a view to gradually reforming it in order to increase pension contributions and strengthen the overall efficiency of the pension system. As part of the first phase of the strategy, a number of legislative amendments were adopted at the end of 2013. But some of these will take effect only in 2014.
The base for calculation of payroll tax is earnings of each individual. It’s calculated on cumulative basics starting from the beginning of the year. Payroll taxes are accrued on top of earnings. It means these taxes are not withheld from a person’s salary. The obligation to pay tax is on the enterprise. Current payroll tax rate in Russia is 30%. But the scale of tax is not flat. It’s regressive and depends of cumulative earnings of individual. That is a complex tax which consist of payments to pension fund (22%), payments to social security fund (2.9%) and payments to medical fund (5.1%). For each part of tax there are some exceptions and special rates for certain categories of individuals.
*Additional contributions for certain categories of workers may apply
For example, if cumulative earnings of individual for the year is RUR1,000,000 the tax amount will be 624,000 * 30% + 376,000 * 10% = RUR224,800 (equals to 22.4%).
Additional pension insurance contributions will apply to workers employed in unsafe, hazardous and difficult conditions. E.g. for employees working in underground or high-temperature conditions, the rates were set at 6% in 2014 and 9% in 2015. It means that for such categories of workers pension fund tax rate will increase from 22% to 28% (22 +6) in 2014 and 31% (22+9) in 2015.
Each year the Government will change the limit for regressive scale of payroll tax. This increased from RUR 463.000 in 2011 to RUR 624.000 in 2014 due to inflation. The strategy of long-term development of Russian pension system includes future indexation of this amount till year 2021 (see table below).
The scale means that in 2015 the regressive scale limit will increase from RUR624,000 to RUR1,060,800 at least. Additional increase can happen due to inflation.
Recent changes in payroll taxation includes the introduction of tighter criteria for foreigners without highly qualified specialist status who are employed under fixed-term employment agreements in Russia and wish to qualify for exemption from pension contributions. Previously, foreigners without highly qualified specialist status who stayed temporarily in Russia and employed under an employment agreement less than six months were exempted from pension contributions on their earnings. As a result, in order to avoid pension contributions, a lot of back to back short-term employment agreements were made on this respect. Currently the payment requirement will apply to employees whose employment agreements add up to a combined total of over six months in one calendar year.
Personal income tax in Russia is at a flat rate depend on individual tax resident status. A tax resident is a person who spent at least 183 calendar days in Russia over 12 consecutive months. Under certain exceptional circumstances, the tax residency status is not lost due to short-term visits abroad.
Russian tax resident is taxed at a rate of 13%. Whereas non-resident is 30%, but there are exceptions – for example foreigners working with a high qualified specialist status will be taxed at 13%, dividend income is 15% etc.
