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Russia's new tax code, currently awaiting debate before a now-vacationing State Duma, may come into effect in January 1998. Employers, however, can reduce assignment costs by taking steps before that date.

Expatriates will benefit from lower tax rates under the draft tax code but many existing tax savings opportunities will be eliminated.

The proposed highest tax rate will drop to 30 percent on yearly income above 60 million rubles (approximately $10,350). The present highest tax rate is 35 percent on income above 48 million rubles (approximately $8,300). And the number of tax bands will be cut to just two-the new top rate of 30 percent and a 12 percent lower band.

On the flip side, the draft code seeks to eliminate the following opportunities:
* Tax residency. The draft code replaces the current test -- whether the expatriate spent more or less than 183 days in Russia in the calendar year -- with a test taking account of presence in Russia over a three-year period. The proposal will hamper attempts to remain non-taxable through careful timing of presence in Russia.

Second, employers paying end-of-assignment bonuses, tax equalization and the like in the final assignment year may now have to reconsider, as expatriates are more likely to be resident that year. And if the code is enacted in 1998, the authorities will be entitled to look at presence in Russia in 1996 and 1997.

Days spent out of Russia for reasons such as business trips, vacation, study and medical care are treated as days spent in Russia.

* Expatriate benefits. The draft code makes expatriate housing and company cars taxable for the first time -- effectively increasing assignment tax costs by 30 percent on these benefits.

Anyone who has seen the cost of expatriate housing in Russia -- particularly in Moscow -- will agree that tax exemption of employee housing reimbursements represents a significant saving for the employer, if the employer is ultimately bearing the tax. For a company with 20 expatriates paying $3,000 a month rent, this measure represents additional income taxes of $216,000 per year.

* Deductions. Unless provided for in an international tax treaty, state social security would no longer be deductible.

* Sourcing. Now, expatriates who remain non-residents of Russia at least in the first and last assignment years, by carefully controlling their presence in the country, can avoid Russian taxes altogether if they have no compensation paid from Russia. The draft code defines any salary for work carried out in Russia as Russian-source -- wherever that salary is paid.

Andrew Chapman is senior manager of International Assignment Services at Price Waterhouse in Moscow, and Claire Newman is an IAS consultant.