Support The Moscow Times!

Draft Law Might Add to Foreigners' Taxes

On top of paying relocation fees and higher salaries, companies could face paying insurance fees for foreign workers starting next year.

A bill that has passed its first reading in the State Duma proposes to lower the insurance fee from 34 to 30 percent, but add a 10 percent fee for those who earn more than 512,000 rubles ($16,600) per year. Now it is up for a second reading, amended to require companies to pay insurance fees for long-term foreign workers, who are currently exempt from them.

Companies pay a 34 percent insurance fee for Russian employees. The fee goes to a medical services fund, social insurance — to create social infrastructure, such as kindergartens and schools — and the pension fund, which could face a deficit of up to 1.75 trillion rubles next year.

The insurance fees' predecessor, the unified social tax, required companies to pay taxes on all employees, regardless of nationality. When the insurance fees system replaced the unified social tax at the start of this year, foreign workers were exempt.

The insurance fees system puts Russians at a disadvantage, since it is cheaper for companies to hire foreigners, Ildar Gabdrakhmanov, deputy chair of the Duma labor and social policy committee, told Vedomosti last week.

While companies do not currently pay insurance fees for foreign workers, hiring foreigners is never cheap, said Lyudmila Shiryayeva, Ernst & Young human capital executive director. Foreign specialists are usually top-level management with very high salaries. The company must also pay for visas and relocation fees.

The amendments are an unexpected development for companies since they were only made public last week, Shiryayeva said. If the bill becomes law, companies will have to scramble to adjust their 2012 budgets.

"The investment and business image of Russia will suffer," Shiryayeva said.

Temporary foreign workers rarely see any returns from the funds, Shiryayeva said. Foreigners usually do not use the dilapidated government-funded medical facilities, since companies pay for their medical insurance. They also do not receive pensions.

Requiring fees for foreign workers is logical, said Yevgeny Nadorshin, National Bank Trust chief economist.

If foreigners stay here for an extended period of time, they end up using at least some aspect of the social infrastructure, such as kindergartens for their children.

Charging insurance fees for guest workers will make the Russian specialist equal with the foreigner.

"It will level out the playing field," Nadorshin said. "Why do companies need to go out of their way to hire a foreigner when there are enough qualified workers here?"

The amendments will not affect unskilled labor, Nadorshin said. Hiring unskilled laborers from China and the former CIS and paying the fees is cheaper than hiring Russians.

Many unskilled laborers work illegally and are not likely to be affected by changes in the law.

Sign up for our free weekly newsletter

Our weekly newsletter contains a hand-picked selection of news, features, analysis and more from The Moscow Times. You will receive it in your mailbox every Friday. Never miss the latest news from Russia. Preview
Subscribers agree to the Privacy Policy

A Message from The Moscow Times:

Dear readers,

We are facing unprecedented challenges. Russia's Prosecutor General's Office has designated The Moscow Times as an "undesirable" organization, criminalizing our work and putting our staff at risk of prosecution. This follows our earlier unjust labeling as a "foreign agent."

These actions are direct attempts to silence independent journalism in Russia. The authorities claim our work "discredits the decisions of the Russian leadership." We see things differently: we strive to provide accurate, unbiased reporting on Russia.

We, the journalists of The Moscow Times, refuse to be silenced. But to continue our work, we need your help.

Your support, no matter how small, makes a world of difference. If you can, please support us monthly starting from just $2. It's quick to set up, and every contribution makes a significant impact.

By supporting The Moscow Times, you're defending open, independent journalism in the face of repression. Thank you for standing with us.

Once
Monthly
Annual
Continue
paiment methods
Not ready to support today?
Remind me later.

Read more