How to Work With a Russian Freelancer From Abroad

How to Work With a Russian Freelancer From Abroad

If you want to employ a Russian in Russian, you need some kind of entity in Russia. An OOO (Russian equivalent of the LLC for example)

Setting up and running such an entity involves costs, however. Not every company is prepared to have that much costs from the beginning of its Russian operations.

Hiring a Russian as a freelancer, rather than as an employee, may be a good alternative in such a scenario. Van Rhijn & Partners can help you arrange required documents for this, so that both parties know what they can expect and can work as effectively in possible. In this blog post I will discuss the possibilities and pitfalls of working with a Russian freelancer. 

On this page

Who can work as a freelancer in Russia
Who pays tax when a foreign company hires a Russian freelancer
How Much Tax the Russian Freelancer has to pay
Does the Russian freelancer need to be registered as an entrepreneur?
Can you check if someone has registered as an IP?
Can you check whether someone has registered as a self-employed person?
What you need to take into account

Who can work as a freelancer in Russia

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Many people in Russia do freelance work without being registered as an entrepreneur. The Russian fiscal authorities tend to take a pragmatic approach towards such people: as long as they pay Personal Income Tax on their income as a freelancer, they won’t be bothered. 

If a Russian does register as an entrepreneur, the most logical choice for him would be to become an “Individual Entrepreneur” индивидуальный предприниматель in Russian. Often simply called IP (ИП). I will stick to this acronym in this blog post. 

By the way not only Russian, but also foreigners with a temporary or a permanent residence permit have the possibility to become an IP in Russia. 

The word ‘individual’ in the term IP may be confusing. They don’t necessarily operate alone. According to the law, an IP may have up til 300 employees (in case he applies the unitary agricultural tax). But in most cases the Russian IP is indeed operating alone. 

Who pays tax when a foreign company hires a Russian freelancer

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When a foreign company, hires a Russian freelancer, the freelancer has to file his or her own tax return and pay tax. You can, of course, offer him help with this, for example by engaging Van Rhijn & Partners.

How Much Tax the Russian Freelancer has to pay

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Type of Registration of Russian Freelancer
Taxation System
Rate and Name of TaxRestrictions
NoneGeneral System13 % Personal Income TaxNon mean for systematic entrepreneurial activity
Self-employed (самозанятый) NPD (НПД)4% for services to natural persons
6% for services provided to legal persons
Applicable up to a turnover of 2.4 million rubles ($38,448 USD)
IPGeneral System13% Personal Income Tax
20% VAT (unless another rate is applicable).See my blog post about VAT in Russia
None
IPSimplified System Variation 1 (taxation of turnover)6% of the turnover (unless a different rate is chosen at regional level, as is the case, for example, in the Republic of Kalmykia)Turnover may not exceed RUB 150 million (approximately $28,735 USD). The possibility to deduct costs very limited under this variant.
IPSimplified System Variation 2 (taxation of turnover minus the costs)15%, unless regionally another rate has been chosen (which is often the case)Turnover may not exceed RUB 150 million (approximately $28,735 USD).

There is no clear answer to the question of how much tax a Russian freelancer has to pay. This depends on:

  1. Whether he has registered an IP
  2. Which tax system he chose to apply. 

The most advantegeous for the freelancer is to register an IP and to apply the Simplified Taxation System. I have described the Russian simplified tax system in this blog post. It should be noted, however, that in writing that document, I had in mind the application of the simplified system to an OOO. The simplified tax system for an IP is broadly the same, but slightly different. In general, the rules of the general system are more lenient for an IP than for an OOO.

Just like for the OOO, the simplified system for an IP comes in two variants. If the Russian IP service provider is providing you with services, it is best for him to choose what I called variant 1 in my blog post: turnover tax at a rate of 6%. For the provision of services, this variant is almost always more advantageous. In addition, the advantage of this variant is that it makes it easier to keep the accounts. 

Deductions under Variant 1

In spite of the fact that variant taxes the turnover is taxed, the IP applying variant 1 of the simplified system may deduct the contributions he has paid to the funds from the amount of tax due. The contributions already paid to the funds may be deducted 100% from the tax to be paid if the IP self-employed person is present. If he has employees, a maximum of 50% of the contributions to the funds may be deducted from the tax payable. Contributions to the funds means:

  • Contributions to the Pension Fund
  • Contributions to the Social Security Fund
  • Contributions to the Compulsory Health Insurance Fund

How much does an IP have to pay to the funds?

The total contributions to the funds for an IP in 2019 are set at 36,238 rubles (about $581 USD) plus 1% of his income above 300,000 rubles. The contributions to the funds for an IP without employees are also much lower than those for an IP with employees or those for an OOO. The contributions to the funds for the last two categories are 30% on top of the gross salary!

Does the Russian freelancer need to be registered as an entrepreneur?

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If one systematically derives income from entrepreneurial activities, it is mandatory to register as an entrepreneur in Russia. However, it should be noted that if a person who is not registered as an entrepreneur receives income and files his tax declarations on time and pays 13% income tax, it is unlikely that he or she will get into trouble with this. In such a case he pays more than he would pay as an IP on the simplified system. 

The Self-employed

It is possible to register an IP in any Russian region. In addition, only 4 Russian regions currently offer the possibility to register as a self-employed person. The Russian term for this is самозанятый. In these regions it is currently possible to register in this form:

  • Moscow
  • Moscow Oblast
  • Tartarstan
  • Kaluga Oblast

From 1 January 2020, the number of Russian in which it is possible to register as a self-employed person will increase significantly. The following regions will be added to the list:

  1. Saint Petersburg
  2. Voronezh Oblast
  3. Volgograd Oblast
  4. Leningrad Oblast
  5. Nizhny Novgorod Oblast
  6. Novosibirsk Oblast
  7. Omsk Oblast
  8. Rostov Oblast
  9. Samara Oblast
  10. Sakhalin Oblast
  11. Sverdlovsk Oblast
  12. Tyumen Oblast
  13. Chelyabinsk Oblast
  14. Krasnoyarsk Krai
  15. Perm Krai
  16. Nenets Autonomous Okrug

The accounting requirements for this category of self-employed persons are even less stringent than for an IP on the simplified system. The self-employed person has to pay the Tax on Professional Activities (Налог на Профессиональную Деятельность or simply НПД). These are the rates for this tax:

  • 4% on income from natural persons
  • 6% on income from IP and legal entities

Contributions to the funds are not compulsory for the self-employed person.

This tax system is only applicable to people who earn less than RUB 2.4 million ($ 38,448 USD) per year. If the income of a self-employed person exceeds this amount, he loses his right to apply this tax system and, like an ordinary citizen, he will have to pay 13% income tax. So if he expects to earn more than 2.4 million rubles per year, he should register an IP.

A recent phenomenon

This form of self-employment is a recent phenomenon. It’s not yet clear what its applications will look like in practice. Some are of the opinion that a self-employed person may not provide services to foreign clients. However, on September 5, 2019, the Russian Ministry of Finance indicated in a letter that such a restriction does not exist ( Письмо Минфина Россиии от 05.09.2019 N 03-11-11/68560).

Can you check if someone has registered as an IP?

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It is possible to verify that someone has registered an IP. You can do this on the same site of the Russian tax authorities, where you can check company information. All information is available free of charge.

Can you check whether someone has registered as a self-employed person?

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It is possible to verify that someone has registered as a self-employed person. You can do this on this site of the Russian tax authorities. For this you need the Tax Identification Number (INN) of the person whose status you want to check. 

What you need to take into account

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If you use the freelance construction as an alternative to hiring an employee, you should bear in mind that you will have people who are not necessarily accustomed to at least formally presenting themselves as entrepreneurs. There are 2 things that are important in this respect that you might want to compensate them for hiring external help.

Accounting

If you, for example, want to hire a chemist as a freelancer, you cannot expect him to have extensive accounting knowledge. Although a great deal of accounting knowledge is not required for filing returns under the simplified tax system. But due to the international aspect of the legal relationship and the fact that foreign currency is used, it is still advisable to outsource the accounting to an external accountant. You can hire Van Rhijn & Partners for this. We take care of the bookkeeping, so that ‘your self-employed person’ can focus on his field of expertise and you can also be sure that the necessary taxes are paid.

Currency control

Depending on the bank the freelancer has his account at, the currency control may be a very cumbersome task for him. Like bookkeeping, this is also a task you can relieve him off by hiring external help. This way the freelancer can focus on his own work. 

How we can help you

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Van Rhijn & Partners can draw up a bilingual agreement between you and the Russian freelancer. This is advantageous for both parties. If the self-employed person regularly receives foreign currency (dollars for example), he will have to present a Russian-language contract to the bank as part of the currency check. It is in your interest to ensure that it is laid down that the self-employed person will treat the information that you make available to him in a confidential manner. 

If you have any questions or comments about working with a Russian freelancer, please contact us or leave a message below.

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