Victory at Last: Strong Relief in the Area of Work Permits and Quotas.

23.08.2010

AmCham News. Volume 16, Number 90.

The global financial crisis did perhaps have one positive aspect after all: it prompted Russia to start thinking about its “investment climate.” And the Russian government has just advanced a major and surprising reform in of its work-permit and quota regimes that should directly impact and help the investment climate of Russia. 

For many firms, both Russian and non-Russian, foreign managers and expertise are vital. In order to control its own investments into Russia, foreign companies need to spend enormous effort, time, and money in appointing non-Russian citizens as general managers of companies or as heads of branches or representative offices of its foreign company accredited in Russia. It is also important for Russian companies to hire foreign staff in order to acquire necessary many of the managerial and technical skills they need to move forward.

After a three–year struggle by the business community and various business associations, addressing the issue of work permits for foreign employees, dealing with the problems of quotas, complying with complex Russian immigration regulations, and drafting numerous letters and appeals to the authorities, at long last, highly desirable amendments have now been added to Federal Law No. 115-FZ (“On the Legal Status of Foreigners in the Russian Federation”), facilitating the hiring of highly qualified foreign personnel in Russia.

To be sure, the new changes introduced by the Federal Law of May 19, 2010, No. 86-FZ (“On Amendments to the Federal Law ‘On the Legal Status of Foreigners in the Russian Federation’ and Certain Legislative Acts of the Russian Federation”), which comes into effect as of July 2010, are observed as something of a miracle. This law significantly eases the conditions for foreigners to work in Russia - a genuine breakthrough in the difficult, politicized sphere of foreign-workforce regulation.

The Federal Law makes a series of material changes to current immigration legislation, particularly in introducing a new category of the “working foreign national:” that is, the highly qualified specialists earning at least 2 million rubles a year in Russia under an employment or civil-law contract. The Law now allows the employers themselves (as opposed to federal regulators) to evaluate a foreign employee’s qualifications. The level of income is the only formal qualifying criterion for a highly-qualified specialist. The Russian authorities, who are usually inclined to exercise too much control over business, now are leaving it up to the businesses themselves to decide whether or not a foreigner is sufficiently qualified. The assumption is straightforward enough: an employer would not pay 2 million rubles a year to someone who was not highly specialized in most normal circumstances.

The draft Law uses the term “salary” to include not just wages, but also all incentive payments. Nevertheless, the employer will need to report the amount paid to the employee. Should it be less than 2 million rubles, the company will be found liable of breaching the immigration legislation by not fulfilling the requirements on engaging highly-qualified specialists. Since incentive payments are not guaranteed, the company might fall into the rut of classifying an employee as a highly-qualified specialist, but one whose final compensation falls below 2 million rubles a year, no matter whether by virtue of an employee’s non-performance or an adverse business environment. It should also be stressed that the Law refers to the salary received by a top professional in Russia from the company that engages him. Therefore income received by a foreign entity abroad (even from a company belonging to the same group) will not be included for the purposes of this Law.

Hiring Procedures Simplified.

The hiring procedure for highly qualified specialists has been greatly simplified. Namely, these specialists are not subject to Russian-entry invitation requirements or work-permit quotas; moreover, there is no need to obtain a corporate permit to employ foreigners. Work permits and corresponding work visas for highly-qualified specialists may be issued for three years, rather than the current one year, as is the case for all other non-specialized foreign employees. These special work permits and visas may also be prolonged indefinitely.

The documents required for obtaining a work permit are: an application, an employment (or services) contract, a written guarantee to bear (or compensate for) the costs of a possible administrative deportation of the foreigner, and the company’s state registration certificate (or accreditation certificate for branches of foreign companies accredited in Russia).  Another highly positive development is that it is no longer necessary to prove educational credentials (unless the Russian legislation stipulates it as a requirement for certain occupations). This means there is no need to apply for copies of diplomas, or to notarize them in their country of issue, and so on. The foreigner will, however, still need to provide medical certificates confirming the absence of specific dangerous diseases. The time set for issuing these work permits is fourteen working days.

It is not yet clear whether a work permit issued to a highly qualified foreigner will cover all the regions of Russia or whether a separate one will be needed for every region in which the foreigner is to work. Yet even if the latter is the case, this will not be much of an issue as companies will be able to obtain work permits in every region also within fourteen working days.

A number of changes have also been introduced with respect to taxation: the income of all highly qualified foreign employees will be subject to a personal income tax rate of 13 percent from day one, rather than when they become tax residents of Russia. However, the employer must notify the federal immigration authorities of their registration with the Russian tax authorities and report quarterly on their earnings. Additionally, the Law simplifies migration-recording requirements now applied when foreigners move from one part of the Russian Federation to another, with no notification now being required for these specialists.

The Law also introduces new rules allowing non-visa expatriates to be hired by Russian individuals to perform non-commercial work (for personal, domestic, and other similar needs), provided that the foreign nationals have licenses. The license will be issued for a period of one-to-three months and can be renewed repeatedly, but for a maximum of twelve months. It will be valid provided an advance of 1000 rubles a month (indexed) is paid towards personal income tax. These changes are designed to flush out the gray area associated with the hiring of private individuals (mainly from the CIS) to work for individuals. This applies to nannies, maids and gardeners.

Rep Offices and Other Hurdles.

Yet in spite of these significant and very positive changes, there are still limits to their applicability. According to the new Law, highly qualified employees can be hired by Russian commercial and scientific organizations, professional educational and healthcare institutions, and other organizations engaged in scientific, technical, and innovative activities, R&D, and testing in areas of priority for Russia, as well as by branches of foreign legal entities in Russia. Yet there is an important caveat: representative offices of foreign legal entities accredited in Russia will not be able to use the simplified procedure to engage this category of foreign employee. Unfortunately these are still hostage to politics and will only be able to take advantage of the simplified procedure if the relevant bilateral treaties are signed between Russia and the company’s country of residence.

The immigration regime remains complicated – requiring, for example, that foreigners register each time they travel within Russia and to file notifications when departing Russia. It is still necessary to notify various authorities when foreigners are hired. There is still a disproportionate liability for the violation of immigration regulations, with exorbitant administrative fines applicable for each violation. The Law also fails to clarify fully a number of other issues, such as the actual format of the work permit application for highly qualified employees. This will require the adoption of additional clarifications from the Federal Migration Service.

Nevertheless, this Law should be appreciated as a significant and positive departure from the past work-permit and quota regimes. It benefits both businesses operating in Russia and Russia’s investment climate. It is therefore very much in the general business community’s interest that the law is taking immediate effect and that any amendments or modification continue this very positive trend.

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Ksenia Soboleva

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