Lease of staff
1. Tax aspects.
2. Labor legislation questions in connection with application of Contract on
lease of staff.
3. Immigration laws.
Foreign enterprise, rendering services on granting the staff for work in
other organizations on the territory of the Russian Federation, should pay the
following taxes:
1. Value-added tax (VAT).
In accordance with clause 146 of Tax code of the Russian
Federation, the realization of goods (works, services) in the territory of the
Russian Federation is subject to taxation.
Place of rendering of services is the territory of the
Russian Federation, if the buyer of services carries out activity in the
territory of the Russian Federation (clause 148 of Tax code of the Russian
Federation). It is considered, that the buyer of services carries out activity
in the territory if it is actually present in the territory of the Russian
Federation on the basis of the state registration, and at its absence - on the
basis of the location, specified in constituent documents of the organization, a
place of management of the organization, the locations of its permanent
executive agency, the location of permanent representative office if services
are rendered through permanent representative office. The given position applies
to the limited number of cases of rendering of services, which include the
rendering of services on granting the staff, in the event that the staff works
in a place of activity of the buyer.
Thus, if the foreign enterprise renders services on granting
the staff for work in other organizations in the territory of the Russian
Federation, in this case, its activity is liable to Value-added tax.
The tax base at realization of services is determined as cost
of the services, estimated on the basis of market prices without including the
VAT and Sales tax. The taxation is made under the tax rate of 20%.
2. Enterprise profit tax.
Concerning the foreign enterprises the method and
conditions of payment of the Enterprise profit tax depends on, whether the
foreign enterprise carries out activity in the territory of the Russian
Federation through permanent representative office, or she receives incomes out
of sources in the Russian Federation.
The definition of the term “permanent representative office”
is set forth in clause 306 of the Tax code of the Russian Federation, according
to which, the permanent representative office of the foreign enterprise in the
Russian Federation – is the subsidiary, representation office, branch, bureau,
office, agency any other detached division or other place of activity of the
enterprise, through which she carries out regularly its business activity in the
territory of the Russian Federation.
Apparently from the definition, one of the basic criteria for
qualification of activity of the foreign organization as carried out through
permanent representative office is the regularity of its realization. Thus, the
given activity should have business character and have for an object reception
of profit.
The law-giver expressly reflected in clause 306 of the Tax
code of the Russian Federation separate cases, when one activity or another
doesn’t suppose the formation of the permanent representative office if there
are no signs of the permanent representative office.
Among those cases, the law-giver named the granting the staff
by a foreign enterprise for work in other organization in the territory of the
Russian Federation.
Such activity doesn’t suppose the formation of the permanent representative
office if there are no signs of the permanent representative office, mentioned
above.
Ministry of Taxes and Duties of the Russian Federation in the
“Methodical recommendations to tax bodies on application of separate provisions
of chapter 25 of the Tax code of the Russian Federation, concerning features of
the taxation of the profit (incomes) of the foreign organizations”, approved by
the order of 28.03.2003 N VG-3-23/150, has made attempt to define conditions at
which activity of foreign organization on granting the staff for work in the
territory of the Russian Federation in other organization does not lead to
formation of permanent representative office.
Such conditions, in particular, concern:
- foreign enterprise should not take up obligations on rendering of any other
services, except for a direction in the Russian Federation experts of required
qualification;
- foreign enterprise doesn’t take up the responsibility for timeliness and
quality of the works which are carried out by directed experts; the sum of
reward for the given staff should cover expenses on wages of the staff and
additional compensations (for example on hiring a premise) and on traveling
expenses;
- the reward can exceed insignificantly the specified expenses (no more than on
10 %);
The specified conditions at which activity of foreign
organization on granting the staff for work in the territory of the Russian
Federation in other organization does not lead to formation of permanent
representative office, in our opinion, raise the doubts and, therefore, it is
necessary to be guided by the given provision cautiously.
First of all, the methodical recommendations, which contain the above conditions,
as it is stated by the document itself, are not regulatory act, but issued to
assure the uniform application of chapter 25 of the Tax code of the Russian
Federation by tax authorities, that is issued for application by tax authorities.
Furthermore, the conditions, mentioned above, contradict
provisions of the Tax code of the Russian Federation, in particular the clause
306.
As it was mentioned previously, one of the basic criteria for
qualification of activity of foreign organization as carried out through
permanent representative office is the regularity of its realization. Thus the
given activity should have business character. One conclusion can be made to
that effect: the activity of foreign organization in the territory of the
Russian Federation will not lead to formation of permanent representative office,
if it is considered as not regular and doesn’t have business character. The law
has not defined other criteria of reference of activity of foreign organization
in the territory of the Russian Federation through permanent representative
office.
The conditions listed in the methodical recommendations at
which the activity of the foreign organization on granting the staff for work in
the territory of the Russian Federation in other organization does not lead to
formation of permanent representative office, are not based on the criteria
specified in clause 306 of the Tax code of the Russian Federation, therefore
their legality is doubtful.
If the activity of foreign organization on granting the staff
leads to formation of permanent representative office, the income received from
such activity through permanent representative office, reduced by size of the
charges made by the permanent representative office, will be liable to profit
tax. The taxation is made under the tax rate of 24%.
If the activity of foreign organization on granting the staff
doesn’t lead to formation of permanent representative office, the profit,
derived from such activity in accordance with sub-clause 2, clause 309 of the
Tax code of the Russian Federation will not be liable to profit tax at a source
of payment.
3. Tax on natural entity’s income.
Conditions and method of payment of the Tax on natural
entity’s income depends on the period of time during which the staff granted by
foreign organization, is in the territory of the Russian Federation, and also on,
whether wage is paid according to the contract on granting the staff by foreign
organization which has granted the staff, or by the organization which is using
the staff and carrying out activity in the territory of the Russian Federation.
If the staff, granted by foreign organization, is in
the territory of the Russian Federation during the period of time, which exceeds
183 days in calendar year, the staff (individuals) is considered as tax
residents of the Russian Federation. The object of taxation for such natural
entities is income, received both from the sources in the Russian Federation and
from the sources outside the Russian Federation.
If the wage is paid outside the Russian Federation in
favor of the tax residents, the tax residents are to calculate the taxes on
obtained income, then the tax declaration is to be submitted by them to the
taxation body (at the place of their registration) and the sum of taxes should
be paid no later than 15 July of a year following the expired taxation period.
If the wages is paid in favor of staff (granted by the
foreign enterprise) by the organization, which uses such staff, the organization,
acting as a tax agent, is to calculate the tax sum in accordance with clause 226
of the Tax code of the Russian Federation, then withhold the tax sum from the
income of the taxpayer and transfer it in the Budget.
Tax residents pay Tax on natural entity’s income at the rate
of 13%.
If the staff, granted by foreign organization, is in the
territory of the Russian Federation during the period of time less than 183 days
in a calendar year, the staff (individuals) is considered as non-residents of
the Russian Federation and pays taxes on income, obtained from the sources in
the Russian Federation. Hence, the wage is paid in favor of the mentioned
individuals by the foreign enterprise outside the Russian Federation; they
needn’t pay Tax on natural entity’s income in the territory of the Russian
Federation. But if such wage is paid by the organization, which uses the staff
in the territory of the Russian Federation, such organization, acting as a tax
agent, is to calculate the tax sum, then withhold the tax sum from the income of
the taxpayer and transfer it in the Budget.
Concerning all income, obtained by natural entities (non-residents of the
Russian Federation), the tax rate is 30%.
4. Unified social tax.
Organizations, which use staff in the territory of the
Russian Federation and such staff was granted on contractual basis with a
foreign enterprise, are in more advantageous position, than those, which use the
staff on the basis of employment agreements or civil-law contracts on the
following grounds.
The object of taxation of Unified social tax (UST) for
taxpayers – organizations, effecting payments in favor of natural entities, in
accordance with clause 306 of the Tax code of the Russian Federation, - are
payments and other rewards in favor of natural entities under employment
agreements and civil-law contracts on carrying out of work, rendering services
and contracts on intellectual property rights.
Organizations use staff in the territory of the Russian
Federation on the basis of relevant contract with foreign enterprise, not on the
basis of employment agreements and civil-law contracts with employees making up
such staff. Therefore no object of taxation of Unified social tax arises by such
organizations and they needn’t pay it in the Budget.
For the time being, the Contract on lease of staff is
quite widespread in foreign countries. The main essence of the Contract is that
one enterprise grants the staff (technical and managerial) for temporary use to
another organization on the onerous basis.
Taking into consideration the fact, that recently the Russian
Federation has developed quickly external economic cooperation, the type of
contract, mentioned above, has been found applicable in our country. At the same
time the legislation expressly regulating the application of such contracts
hasn’t been adopted yet, thus, in our opinion, the type of contract, mentioned
above, is to be regulated in details because of its specific subject.
The Contract on lease of staff is a civil-law contract by its
legal nature – one enterprise renders services on granting staff to another one,
thus the relations between the parties in that case are considered as of
property nature. As it was mentioned previously, civil legislation doesn’t
contain any specific legal regulations concerning Contract on lease of staff.
But application of such type of contract doesn’t contravene the Civil law of the
Russian Federation. In conformity with clause 421 of the Civil code of the
Russian federation, contractual parties are allowed to enter into a contract
both stipulated by law or not.
On one hand, the Contract on lease of staff is a civil-law
contract regulating property relations between two enterprises, on the other
hand, under such contract the staff is granted for temporary use to the
enterprise where those employees carry out some duties, envisaged by local
regulations and instructions, in accordance with labor legislation.
A question of what legislation should be applied to the
relations between enterprise and the staff in connection with performance of
duties by employees might arise. Civil law covers all property relations and
connected to them non-property relations, based on equality of parties, autonomy
of will and property independence of the participants. Labor law regulates labor
and other relations connected with. What legislation should be applied to is
determined by the matter of the relations, not by the regulative method.
It is possible to prove, the relations between enterprise and the staff are of
the labor nature, on the basis of the following criteria:
- the subject-matter – the subject-matter of the labor relations is the working
process of employee of specific qualification;
- subjection of employee to the local regulations;
- obligation of Administration to organize working place and ensure safety
working conditions.
Clause 11 of the Labor code of the Russian Federation stipulates if there is a
court judgment determining, that the civil-law contract practically regulates
the relations between employer and employee, labor legislation should be
applicable to such relations.
The opponents could object to the point above, saying that an
employment agreement is the basis of the labor relations. This is correct,
according to clause 16 of the Labor code of the Russian Federation, labor
relations arise on the basis of the employment agreement. But the same clause
contains the provision under which the labor relations might arise on the basis
of employment agreement as a result of actual admission to work with knowledge
and on the instructions of employer or his representative, in spite of the fact,
whether the employment agreement has been dully drawn up. Since the staff has
been admitted to work, therefore the provisions of the Labor code of the Russian
Federation mentioned above are applicable.
Taking into consideration the fact, that the enterprise,
granting the staff for work, is in labor relations with such staff, the question
is how the procedure of granting the staff for work in other organization should
be drawn up. It could be, of course, drawn up as a business trip. But in this
case the question of terms of such business trip arises. According to clause 4
of the Instructions of 07.04.88 ¹ 62 “About official journeys within the USSR”,
approved by the Finance Ministry of the USSR, Labor State Committee of the USSR
and VCSPS, the terms of a business trip couldn’t exceed 40 days, not including
the time of being en route. An exclusion has been made for workers and
specialists, sent for carrying out of mounting and construction works, - their
business trip couldn’t exceed one year.
Taking into the account, that contracts on granting the staff are concluded, as
a rule, for the period, exceeding 40 days, thus the problem on procedure of
dawning up for employees, being sent for work in other organization, is
outstanding.
The question, whether the enterprise, giving employment to,
is obliged to grant some privileges to the staff, if such staff is used for hard
or unhealthy works, envisaged by the proper lists, is outstanding too. On one
hand, if the labor legislation, envisaging privileges mentioned above, is not
applicable to the staff, there is no need for the enterprise, giving employment
to, to grant such privileges, on the other hand, the nature of works could
suppose some privileges for maintenance of proper working and health conditions.
Russian immigration laws are in the making and fall behind
the practice. Then the Law on legal status of foreigners in the Russian
Federation (¹ 115-FZ of 25.07.2002) determines that Russian entity might act as
a customer for works (services) and on this basis the entity is allowed to
receive the Permit for inviting of foreign employees. Perhaps the dominating
type of civil-law contract, used between Russian and foreign enterprises, was
and is the Turnkey contract, which is widespread in construction. On the basis
of practical use of such type of contracts, the Law on legal status of
foreigners in the Russian Federation was amended by including of provision,
allowing customers to invite foreign employees. But legislation in force doesn’t
contain any detailed list of civil-law contracts, which could serve as the basis
for obtaining of all permissive documentation. Hence the wide interpretation of
Law on legal status of foreigners in the Russian Federation is possible and that
occurs in practice. Employment authorities and Immigration authorities accept
Contracts on lease of staff made between Russian and foreign entities as the
basis for obtaining Permits for inviting of foreign employees.
As the russian legislation is based on the priority right of
russian citizens to fill a vacant posts and as a result the expediency of
inviting of foreign employees, thus with more careful consideration of
applications for inviting of foreign employees under the Contract on lease of
staff, a number of questions might arise with Authorized bodies.
The most vulnerable place is the grounding on the expediency
of inviting of foreign employees.
In the first place, as a rule, the Contract on lease of staff
mentions only the qualification of employee. It doesn’t contain a word on the
volume of work (services), which is to be carried out by the employee during the
terms of the contract. As there is no final result, the expediency couldn’t be
defined. Yes, it is an excellent specialist, but for what purpose are you
inviting him?
In the second place, it would be possible to connive at the
absence of the volume of work (services) and the final result; if the invited
specialist were stipulated by the staff arrangements and they had determined
functionary duties. Then on the basis of such duties, it would be clear what the
invited specialist was going to do.
But the staff arrangements doesn’t contain those specialists,
functionary duties are not determined and the only Permit for work in the
Russian Federation, made in plastic, and the second copy of tax declaration,
submitted once a year, distinguish them from phantom.
Conclusion:
The growing practice of application of Contracts on lease of staff requires
their detailed regulation by Law, to prevent the collision with other Laws. In
this case, the relations, formed in practice, must be legalized, - and this is
one of the primal aims of Law.
