Tax Update on Mandatory Social Contributions

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From 1 January 2012 the mandatory social contributions rules change significantly.

  • For the period of 2012 – 2013 the tariffs applicable to social contributions to the Pension Fund are going to change, increasing significantly the employer’s burden with regard to employees with annual an employment income over RUB 512,000 (the “Threshold” ):
    • with regard to employee’s annual income up to and including RUB 512,000 – tariff will be reduced from 26% down to 22% (and by taking into account tariffs of social contributions to the Social Security Fund and the Medical Insurance Fund, the aggregate tariff is reduced from 34% down to 30%);
    • with regard to employee’s annual income over RUB 512,000 – a tariff of 10% is introduced.
  • The obligation to pay social contributions to the Pension Fund is also introduced with regard to foreign citizens, who (a) temporarily stay in Russia (i.e., on a visa, if applicable), (b) work under an employment contract (for an unlimited term or for a term exceeding 6 months), and (c) do not enjoy the “highly-qualified-specialist” status. For the period of 2012 – 2013 the following tariffs will apply with regard to such foreign employees:
    • with regard to employee’s annual income up to RUB 512,000 – 22% (although the law is ambiguously drafted and permits a reading that a tariff of 16% applies);
    • with regard to employee’s annual income over RUB 512,000 – 10%.

The table below compares social contribution tariffs applicable in 2011 with those which are introduced for 2012-2013.

Year

2011

2012 – 2013

Employee’s citizenship

Russians

Foreigners

Russians

Foreigners

Threshold

RUB 463,000

n/a

RUB 512,000

RUB 512,000

Tariff of contributions to Pension Fund

within the Threshold

26%

0%

22% (max. RUB 153.600)

22% (max. RUB 153.600)

over the Threshold

0%

0%

10%

10%

Tariff of contributions to Social Security Fund

within the Threshold

2.9%

0%

2.9%

0%

over the Threshold

0%

0%

0%

0%

Tariff of contributions to Medical Fund

within the Threshold

5.1%

0%

5.1%

0%

over the Threshold

0%

0%

0%

0%

Aggregate tariff of social contributions

only within the Threshold: 34% (max. RUB 57,420)

0%

within the Threshold: 30% (max. RUB 153,600) plus over the Threshold: 10%

within the Threshold: 22% (max. RUB 112,640) plus over the Threshold: 10%

  • The list of employers which pay social contributions at reduced tariffs and only within the Threshold, is extended as follows:
    • tariff of 20% (payable only to the Pension Fund) for the period of 2012-2013: for employers which apply the simplified tax regime and are engaged in certain business activities (the list of qualifying activities is extended and now includes transportation, communication, retail trade with pharmaceuticals and medical goods) as well as for charitable or non-commercial organizations (with certain exemptions);
    • tariff of 14% for the period of 2012-2017: for “residents” of tourist-recreation zones or technical-innovative zones with regard to remuneration of employees working, in particular, in a cluster of tourist-recreation zones or in industrial-production zones respectively;
    • aggregate tariff of 30% for the period of 2012-2013: for engineering companies (other than residents of the technical-inno