process. You will find more about Russian legislative requirements for foreign assignments in this edition.

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1 In this issue: Introduction...1 Sergei Makeev Moving abroad for work...2 Roman Gusev EY Russia People Focus Overview of changes in immigration legislation...4 Ekaterina Matveeva The US tax season is still in full swing...6 Ksenia Pavlova Autumn is the time of EY General Industry Compensation and Benefits Survey/...7 Sergey Vasin Quarterly review October 2017 Introduction Autumn often triggers us to think about the changes and achievements of the past year. process. You will find more about Russian legislative requirements for foreign assignments in this edition. Moving to take up a foreign assignment is one of the most challenging changes in your career. The better you understand the legislative requirements impacting you in case you move, the better you will manage the tax implications and other risks during the assignment and upon your return. In the context of Russia joining the Common Reporting Standard, which is a global automatic information exchange system, being on top of the legislative requirements is becoming a crucial element of the assignment planning 2017 is no exception to previous years in terms of changes in immigration law. In this edition, we talk about key changes in immigration legislation that have already taken place in 2017, as well as those that are still under discussion. If you are a US taxpayer and did not file your US tax return by 16 October, we would like to remind you that you can apply for an additional extension provided you are living abroad. The Russian economy has continued to show signs of recovery in Autumn is the time when EY releases the General Industry Compensation and Benefits Survey. According to the Survey, the majority of companies have increased their salaries, just like during the previous year. We have included an article with statistics based on the results of the latest Survey which we think you will find interesting. We wish you a warm autumn and, if you face changes, we hope that they will be only for the better!!

2 Moving abroad for work Russian nationals moving abroad for work are often unaware of some of the requirements imposed by the laws of their home country. This may result in violations, which could trigger heavy sanctions and, on certain occasions, even criminal liability. The requirements arise from the provisions of tax, currency control and migration law. Below is a brief summary of issues that should be considered when moving abroad. Tax matters In almost all cases, Russian nationals must file a personal income tax return (3NDFL form) in the year they leave or return to their home country. Individuals leaving Russia to work abroad could face one of the following situations: 1) They become Russian tax residents (if they are in Russia at least 183 days during the year of the move), in which case they will have to report foreign income earned during that calendar year in a 3NDFL tax return and file it with the tax authorities, or 2) They become tax non-residents in Russia (if they are in Russia less than 183 days during the year of the move), in which case they will have to file a 3NDFL tax return and pay an additional amount of personal income tax (PIT) at the rate of 30%, as it is highly probable that their employer withheld only 13% income tax from their salary before they moved abroad. Any proceeds from the sale of property in Russia will also be taxed at the rate of 30%. When such an individual returns to Russia, the situation will be almost identical, except for certain nuances that come into play. For example, the Russian employer may start withholding PIT at the rate of 30% until it is proved that the employee was in Russia 183 days. As soon as the required number of days is reached, the employer will stop withholding PIT until the entire amount of over-withheld tax has been offset. If before the end of the calendar year the employer fails to offset the over-withheld tax in full, the employee will have to file a 3NDFL tax return in order to claim the outstanding balance. Currency control Russian currency residents (effectively, almost all Russian nationals) must notify the tax authorities within one month after they open or close an account with a foreign bank. There is also an obligation relating to overseas accounts held by Russian nationals: with effect from 1 January 2015, they are obliged to annually report to the tax authorities on movements of funds on accounts (deposits) in banks outside the Russian Federation. 2 People Focus October 2017

3 Note that in its recent Letter No. of 16 July 2017, the Federal Tax Service expressed an opinion that foreign currency transactions on accounts held by a currency resident should be regarded as illegal if the latter fails to notify or report to the tax authorities accordingly. In this case, the currency resident will be charged a fine for illegal foreign currency trading, ranging from 75% to 100% of the transaction value. Automatic exchange of information (CRS) In the context of tax and currency control, it is important to mention that next year Russia is planning to join the Common Reporting Standard (CRS), which is designed as a global automatic information exchange system. When the supporting regulatory framework has fully matured, the new system will allow the tax authorities to obtain the information they need (including the details of Russian nationals bank accounts) from over 100 other countries that have joined the CRS. Note that in 2018 access will be provided to data for 2017 (possibly not yet by all countries). Hence, the tax inspector should have the following information pertaining to a Russian national who has moved abroad for work and opened a bank account in the host country: Notification of the opening of a bank account (to be submitted in person) Report on movements of funds on the bank account (to be submitted in person) Tax return, if required (to be submitted in person) Details of the bank account, obtained as part of the automatic exchange of information (if the disclosing country exchanges such information with Russia under the CRS) In addition to the aforementioned, the tax authorities should have information about the taxpayer s income earned with the Russian employer (2NDFL form) as well as information about any property sold (e.g., many people sell their vehicles before moving abroad for work). By comparing this data, the tax inspector will be able to verify the accuracy of the information in the 3NDFL tax return (e.g., whether it includes interest earned on the foreign bank account). If a 3NDFL tax return has not been filed, the tax inspector may ask the taxpayer to provide an explanation (e.g., the absence of sources of income in Russia and non-resident status). Migration matters From 2014, Russian nationals who have dual citizenship, a permanent residence permit or another document confirming the right to reside permanently in a foreign country must notify the migration authorities accordingly. The Ministry of Internal Affairs has so far not provided any clarifications as to what documents qualify as other documents confirming the right to reside permanently in a foreign country. We therefore recommend notifying the migration authorities of long-term work visas and residence permits as well. A notification must be filed within 60 days after the relevant document is issued. If the citizen obtained such document while abroad and did not enter Russia within the next 60 days, a notification must be filed within 30 days after the first arrival in Russia. Note that there will only be one day left to file a notification if the citizen enters Russia on the 59th day after obtaining the document. Parents are required to complete the notification procedures on behalf of their minor children. Non-compliance with notification deadlines or formalities is punishable by a fine of RUB 500 or RUB 1,000. It is important to mention that failure to notify the migration authorities may entail criminal liability in the form of a penalty (up to RUB 200,000 or the offender s annual income) or compulsory community service of up to 400 hours. Before you go Since it s not easy to submit reports, notifications or other documents to the Russian authorities while abroad, we recommend that before moving to another country you issue a power of attorney for someone in Russia to handle the above matters on your behalf. The tax authorities are actively promoting online services, such as the taxpayer personal on-line account, which can be used for filing tax returns, notifications and reports on bank accounts. Before moving abroad, you should also consider property-related matters: if a tax non-resident sells a property, he will have to pay PIT at the rate of 30% on the entire sale (no exemptions apply). It s also worth discussing money transfer arrangements with the Russian bank. Before making any cross-border transfers, the bank will most likely require a copy of the notification of the opening of a foreign bank account. People Focus October

4 Overview of changes in immigration legislation In 2017, some changes were introduced into the Russian immigration legislation and a number of legislative initiatives, which currently are under consideration, were proposed. On the pages of this publication we will tell you about some of these changes. The removal of economic restrictions against Turkey In May 2017, the President of the Russian Federation signed the «Decree on the abolition of certain special economic measures against Turkey» (hereinafter - the Decree), which abolished the restrictive measures imposed on Turkey in One of the most important points of the decree was the abolition of restrictions on the activities of Turkish companies in Russia. Moreover, Russian companies again can engage citizens of Turkey for work and apply for work permits for such employees. Notwithstanding the ban on effectiveness of the «Agreement between the Government of the Russian Federation and the Government of the Republic of Turkey on the conditions for mutual trips of citizens of the Russian Federation and citizens of the Turkish Republic» (hereinafter - Agreement), according to which citizens of Turkey holding diplomatic passports, could follow the transit and stay on the territory of the Russian Federation for more than 30 days upon entry without a visa, still has not been lifted. Moreover, the Decree of 2017 imposed a ban on visa-free entry regime to Russia in terms of the Agreement s provisions for citizens of Turkey holding valid service passports and sent to Russia for short-term business trips, including diplomatic missions and consular offices of the Republic of Turkey located on the territory of Russia, including members of their families. Restriction of the share of foreign employees in certain sectors of economic activity The Ministry of Labor of the Russian Federation has prepared a draft resolution of the Government of the Russian Federation that approves the allowable share of foreign employees working in certain sectors of the Russian economy for This is a share of the total number of employees of the given company. For 2018 it is proposed to keep shares for engagement of foreign employees by Russian companies of all sectors of the economy, established earlier for At the same time, a complete ban on the engagement of foreign employees by companies involved in the following economic activities still remains: retail trade in medicines in specialized stores (pharmacies); retail trade in non-stationary trading facilities and markets; retail trade other than shops, tents, markets. It is also interesting to note that the resolution proposes to set a permissible share in the vegetable growing sector in the amount of 50% for all regions (with the exception of some territories of Russia), such as Khabarovsk, Astrakhan, Volgograd, Voronezh, Lipetsk, Moscow, Rostov, Saratov regions, which will allow to regulate the engagement of foreign employees in the respective regions, taking into account characteristics of the local labor market. 4 People Focus October 2017

5 New requirements for migration card when hiring foreign employees The Ministry of Internal Affairs of the Russian Federation has developed a draft federal law that amends some articles of the Code of Administrative Offenses of the Russian Federation in terms of engaging of foreign citizens. In accordance with the draft law when employing a foreign citizen, with some exceptions, the employer should make sure that the employee s migration card specifies «work» as a purpose of entry to Russia. It is also proposed to impose liability for employment of foreign employees without conclusion of a labor or civil-legal agreement. Otherwise, an official will be fined up to rubles, legal entities - from up to rubles, or liability in a form of an administrative suspension of activities for a period of 14 to 90 days may be applied to the employer. A fine of up to 5,000 rubles will also be imposed on a foreign citizen. According to the comments to the draft law, this initiative mostly applies to those employers who engage foreign individuals from the states-members of the Treaty on Eurasian economic union, who do not require permits to work in Russia. E-visas for entering Russia through Free-Port Vladivostok Beginning 1 August on Far East a new simplified visa regime came into force on the territory of Free-Port Vladivostok, which includes a number of municipal units of Primorskiy, Khabarovsk, Sakhalin, Chukotka and Kamchatka regions. This visa regime was introduced by the law signed by the President in March Under this law foreign citizens coming to Russia through the checkpoints of Free-Port Vladivostok can obtain single-entry e-visas for business, tourist and humanitarian visits to Free-Port. The list of countries, which citizens can enter Russia under e-visa, is regulated by the Russian Government and at this stage it incudes 18 countries. Presently two checkpoints of Vladivostok work under the new visa regime: seaport of Vladivostok and airport Knevichi. Starting January 2018 the number of such checkpoints will be increased to four. Beginning 8 August 2017 a special web-site of the Ministry of Internal Affairs designed to issue e-visas began its work. In order to obtain such a visa, foreign citizens need to access this web-site and complete the questionnaire. The latter will be processed within 4 days upon submission. In case of approval, the visa is stamped straight at the Russian border. The e-visa is granted valid up to 30 calendar days with the allowed period of stay in Russia limited to 8 calendar days. No state duty should be paid for e-visa approval. The e-visa allows its holder to stay only on the territory of Free-Port Vladivostok. Departure should be also done through the checkpoints of Free-Port Vladivostok. People Focus October

6 The US tax season is still in full swing! The first filing deadline for 2016 US tax returns 17 April 2017 is now behind us. If you weren t able to file by 17 April, but did apply for an automatic extension by submitting Form 4868, the day you re aiming at was 16 October US taxpayers living abroad may also apply for an additional extension until 15 December 2017 by sending a letter to the IRS explaining the reasons for requesting an extension. 6 People Focus October 2017 If you have foreign bank accounts with a combined balance of over USD 10,000, you are also required to submit a Report of Foreign Bank and Financial Accounts (FBAR). As you know, the FBAR filing deadline was moved this year from 30 June to 17 April 2017 for the 2016 reporting period. An automatic six-month extension was granted (until 16 October 2017), but no further extension is possible. We encourage you keep these deadlines in mind and will be happy to answer any questions.

7 Autumn is the time of EY General Industry Compensation and Benefits Survey In 2017, the Russian economy continues to show signs of recovery from the recession caused by low oil prices and economic sanctions. Gradual recovery of Russian economy influences positively on Russian labor market as well. This year salary increases exceeded inflation rate. Together with the stable situation in variable compensation and benefit package, increase of personnel real income testifies a positive dynamic on labor market and gradual recovery of employers. There are positive changes in headcount changes as well this year a third of companies have planned increase of personnel headcount. According to results of General Industry Compensation and Benefits Survey most companies (79%) adjusted their salaries in the period from May 2016 through April 2017, as they did last year, with the average payroll increase amounting to 7.2%. This year payroll increase compensated inflation rate, which was 4% from May 2016 through April % of companies plan further salary increases, averaging 6.2%, in the next 12 months (between 1 May 2017 and 30 April 2018). Last year most of the survey participants (91%) have paid performance bonuses. Annual bonuses remain the most common form. Bonuses actually paid, as in previous years, were a little below the targets, meaning that performance indicators were also slightly below expectations. Contrary to what might have been expected, benefits packages have not changed significantly either. As usual, the most popular benefits are mobile phones (93%), Medical insurance (93%) and life insurance (59%), corporate cars (80%) and sponsored meals (59%). Moreover, the number of respondents offering a housing program or corporate retirement benefit plan to their employees has increased from the previous year. This year the share of companies offering working from home has increased (24%), which primarily links with development of digital technologies. Moreover, offer of such option allows companies to enhance employer brand and gain benefits in competition for Y generation qualified personnel. However, issues of personnel control as well as insufficient level of employee self-organization limits popularization of working from home. We expect positive changes on the Russian labor market over the next few years as the country s economy gradually recovers. We will continue to regularly monitor the domestic labor market and keep our clients up to date on key changes and trends. Dynamics of benefits, % of companies 93% 96% 95% 94% 93% 95% 95% 93% 80% 82% 81% 75% 59% 61% 61% 56% 59% 53% 54% 56% 33% 34% 35% 36% 20% 17% 19% 19% 10% 7% 10% 11% Paid mobile services Medical insurance Company cars Life insurance Sponsored meals Sponsored sport activities Pension plans Housing program People Focus October

8 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY works together with companies across the CIS and assists them in realizing their business goals. 4,500 professionals work at 20 CIS offices (in Moscow, St. Petersburg, Novosibirsk, Ekaterinburg, Kazan, Krasnodar, Rostov-on-Don, Togliatti, Vladivostok, Yuzhno-Sakhalinsk, Almaty, Astana, Atyrau, Bishkek, Baku, Kyiv, Tashkent, Tbilisi, Yerevan, and Minsk). EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com Ernst & Young (CIS) B.V. All Rights Reserved. Contacts Peter Reinhardt Tel: +7 (495) Peter.Reinhardt@ru.ey.com Ekaterina Ukhova Tel: +7 (495) Ekaterina.Ukhova@ru.ey.com Sergei Makeev Tel: +7 (495) Sergei.Makeev@ru.ey.com Anton Ionov Tel: +7 (495) Anton.Ionov@ru.ey.com Gueladjo Dicko Tel: +7 (495) Gueladjo.B.Dicko@ru.ey.com