Business trip abroad: Complex documentation16 January, 2018
By Ekaterina Ermakova, project manager at Intercomp
The documentation of settlements with employees is one of the most important areas of accounting, because various types of payment as well as tax deductions and social contribution amounts are dependent on it. Particular attention should be paid to the issuance of funds for business trips, including business trips abroad as discussed by Ekaterina Ermakova, Project Manager at Intercomp.
Documenting business trips abroad is usually different from documenting business trips within Russia although some aspects are similar such as the issuance of business trip orders and the recording of business trip days in timesheets. More expenses need to be incurred for business trips abroad than for business trips within Russia as, even before departure, it is necessary to have an international passport, a visa as well as other documents. Employees pay for their international passports and the insurances required for business trips abroad, and these expenses are then reimbursed to them. Compulsory consular and airport fees are also reimbursed to employees traveling abroad, as well as transit fees if they travel to airports by car.
Let’s start with the issuance of advanced funds as changes were introduced to this practice in 2017. It is now possible to draw up executive documents for issuance of advanced funds, and it is no longer necessary to require employees to submit an application for cash advance. It is also possible now to advance cash even employees have not yet reported money received earlier (Bank of Russia Order No. 4416-U dated June 19, 2017). It is important that these executive documents be issued for each cash advance. They may be issued as orders, for example. If companies are used to drawing up applications for cash advance, then it should be noted that, in addition to signing and dating such applications, company directors should also specify the amount given and the date on which it should be returned (Bank of Russia Letter No. 29-1-1-ОE/20642 dated September 06, 2017).
Please note that most companies advance cash in rubles, and employees themselves convert them into currency, if necessary. This is usually done so, because this simplifies accounting as, in this case, companies do not need to set up additional sub-accounts for amounts in foreign currency.
Although it is against the law to transfer a personalized corporate card from an employee to another, this is sometimes done in practice. In such case, we recommend attaching to expense reports a note indicating that expenses were paid using a card issued to a manager.
Let’s review in more detail the situation where advance funds in currency are given to employees to cover business trip expenses as permitted under Russian law (Item 16 Regulations, Article 9(1(9)) Federal Law no. 173-FZ On Currency Regulation and Currency Control dated December 10, 2003). When companies give an advance in foreign currency, they do so in compliance with Russian accounting regulations (RAS 3/2006 Accounting of Assets and Liabilities the Value of which is Expressed in Foreign Currency approved by Russian Ministry of Finance Decree No. 154n dated November 27, 2006, Article 30(1) Federal Law No. 402-FZ). Currency is revaluated as per standard procedure.
Please note that it is in practice much simpler for accountants to issue advance funds in rubles if payments during business trips are made in cash. It is even more convenient to transfer advances or reimburse expenses to the employees' card.
Daily allowances or per diem expenses
The way of accruing and paying daily allowances is particular when employees are sent on business trips abroad. Companies are entitled to set their own daily allowance amount. The daily allowances set out in internal regulations (Business Trip Policy) may be deducted in full for profit tax purposes, but there is a limit for personal income tax purposes set at RUB 700 per day for business trips within the Russian Federation and RUB 2,500 per day for business trips abroad (Article 217 Russian Tax Code). If the daily allowances set in certain companies exceed the aforementioned amounts, then the difference will be subject to personal income tax and social insurance contributions (Article 422(2) Russian Tax Code).
Daily allowances for business trips within Russia and for business trips abroad are usually different as they are paid depending on the country of destination (Items 17 and 18 Regulations on the Particularities of Sending Employees on Business Trips approved by Governmental Decree No. 749 dated October 13, 2008 as amended on July 29, 2015). The dates of departure from and entry into the Russian Federation are determined by travel documents for business trips to the CIS countries with which intergovernmental agreements for non-marking of border-crossing have been signed. And for business trips abroad, the dates of departure from and entry into the Russian Federation are determined by border-crossing stamps in passports. In case of one-day business trip abroad, only 50% of the usual daily allowance for business trip abroad is paid (Item 20 Regulations on Business Trips).
It should be noted that if companies pay daily allowances for one-day business trip in Russia, social insurance contributions will be withheld from such payments. Referring to Item 11 of the Regulations on Business Trips, the Ministry of Finance has clarified that daily allowances should not be paid in case of one-day business trip in Russia so Article 422(2) of the Russian Tax Code, under which daily allowances provided for in Article 217(3) of the Russian Tax Code are not subject to social insurance contributions, should not apply. Daily allowances paid for one-day business trip in Russia are therefore subject to social insurance contributions. However, if employers reimburse the expenses associated with business trips, no social insurance contributions will be withheld from such payments as they are not deemed to be income for employees.
As for personal income tax, in its letter No. 03-04-06/56259 dated October 01, 2015 and letter No. 03-04-07/6189 dated March 01, 2013 (sent by Federal Tax Service letter No. ЕD-4-3/5200@ dated March 26, 2013), the Ministry of Finance upheld the following position: “When employees are sent on a one-day business trip, the money paid to employees instead of daily allowances is not subject to tax in the amounts set out in Article 217(3) of the Tax Code.”
Example of calculation of daily allowance
An employee is sent on business trip to the United States, then directly to Germany without entering Russia. The daily allowances set in the company amount to RUB 900 for business trips in Russia, USD 60 for business trips in the United States, and EUR 50 for business trips in Europe, including Germany. The employee flew to the States on October 5, then to Germany on October 8, and finally he arrived in Russia on October 11. Upon approval of his expense report, the exchange rate was RUB 57 for USD 1 and RUB 68 for EUR 1.
Daily allowances are as follows:
— from October 5 to October 7 — RUB 10,260 (3 days × USD 60= USD 180);
— from October 8 to October 10 — RUB 10,200 (3 days × EUR 50 = EUR 150);
—Total: RUB 21,360.
Итого: 21 360 руб.
The law has set limits on daily allowances beyond which personal income tax applies. Calculation of limit amount of daily allowances not subject to personal income tax:
From October 5 to October 10 — RUB 15,000 (6 days × RUB 2500)
October 11 — RUB 700
Total: RUB 15,700
The difference consists in RUB 5,660 (RUB 21,360 — RUB 15,700) so it will be necessary to withhold personal income tax and social insurance contributions from this difference. However, the entire daily allowance amounts will be deductible for profit tax purposes if they are specified in the company’s internal regulations (Business Trip Policy).
More and more companies are giving up cash in favor of corporate cards which are not only more convenient and save time, but also simplify accounting. Corporate cards are also used for business trip expenses. These cards are the same as regular bank cards, can be used to pay abroad also, and allow enjoying certain benefits such as, for example, discounts and bonuses. The company’s internal regulations must provide how to use these cards and specify the employees entitled to use corporate cards, the card limits, how to obtain and return them, etc. (Article 8(1) Russian Labor Code).
Corporate cards may be issued for a particular person. They may also be impersonal. In any case, they should be issued to employees with acknowledgement of receipt. When employees use an impersonal corporate card, it is necessary to set up a certain recording so that everybody knows who has the card at any given time. Such cards are usually issued to employees for a certain period and specific purposes, after which they should be returned to the company. It is recommended to keep such cards in a safe.
It is not permitted to transfer a personalized card from one employee to another (Central Bank of Russia Regulations No. 266-P On Issuance of Bank Cards and Transactions with Payment Cards dated December 24, 2004). This, however, happens in practice when, for example, a company manager gives his personalized card to his assistant. In such case, it is recommended attaching a note to the relevant expense reports, stating that the expenses were paid using the manager’s card.
It is important to note that receipts and other supporting documents still need to be collected even when services and/or goods are paid by corporate cards, because card statements only confirm payment, and expenses must be supported by primary accounting documents.
The main differences between business trips within Russia and abroad are indicated in the table below.
To be done when employees are sent on business trip
Issue an order specifying time periods, destination, trip purpose; record business trip days in timesheet
Obtain an international passport for travel abroad, and visa, if necessary
Advance issued to employees
Both in rubles and in foreign currency
Daily allowance amount not subject to personal income tax
Documents in foreign language must be submitted with line-by-line translation (employees may complete such translation themselves)
Travel and accommodation expenses are reimbursed to employees together with additional expenses incurred for living outside their permanent residence (per diem), as well as other expenses incurred by employees with the permission of their company head
a) Expenses incurred to obtain an international passport for travel abroad, visa and other travel documents;
b) Compulsory consular and airport charges;
c) Fees for car entry or transit;
d) Expenses for compulsory health insurance;
e) Other mandatory fees and charges.
If employees stay abroad for more than 183 days, their status will change to non-resident. In such case, their income will be taxed at 30%.