No. 65. From 2010, the Unified Social Tax is to be replaced by insurance contributions to state extra-budgetary funds
Goltsblat BLP advises that
FederalLawof 24 July 2009 No. 212-FZ“OnInsuranceContributionstothePensionFundoftheRussianFederation, SocialInsuranceFundof the Russian Federation, Federal Compulsory Medical Insurance Fund and Territorial Compulsory Medical Insurance Funds;
FederalLawof 24 July 2009 No. 213-FZon amendments to certain legislative acts of the Russian Federation resulting from adoption of the above Federal Law
come into force on 1 January 2010 (with the exception of certain provisions).
These federal laws are designed to reform the social welfare system. The UST is replaced by insurance contributions payable in a largely similar manner to current UST payments (the payments included in the insurance contribution base and the list of exempt payments will generally remain the same).
From 2011, the following insurance contribution rates are established:
26% – to the Pension Fund of the Russian Federation (compulsory pension insurance);
2.9% – to the Social Insurance Fund of the Russian Federation (compulsory social insurance for temporary incapacity to work and for maternity);
2.1% – to the Federal Compulsory Medical Insurance Fund (compulsory medical insurance);
3% – to territorial compulsory medical insurance funds (compulsory medical insurance).
So, starting from 2011, insurance contributions will total 34% (26% in the interim year of 2010). The law establishes reduced rates for certain categories (organisations resident in technology implementation zones, etc.) for 2010-2014.
No regressive scale of contributions is envisaged in the law. The insurance contribution base is limited to 415 thousand roubles per person, to be calculated on an accrual basis from the beginning of the year (subject to annual indexation in proportion to the increase in the average salary). Amounts in excess of the above sum are exempt from contributions.
Unlike UST, the law does not require deductibility of the payments for income tax purposes as a prerequisite for eligibility for insurance contributions. Another difference is that the obligation to pay insurance contributions is recognised as not fulfilled if an incorrect budget classification code is indicated in the payment order.
Insurance contributions will be calculated and paid under the supervision of the Pension Fund of the Russian Federation (compulsory pension and medical insurance contributions) and the Social Insurance Fund of the Russian Federation (compulsory social insurance contributions).
Generally, the procedure for monitoring payment of insurance contributions and that for challenging acts of controlling authorities are similar to those envisaged in Part 1 of the Russian Tax Code. The functions of the controlling authorities (performance of audits, contribution computation, enforced recovery of arrears, default interest and fines from monetary funds, property, etc.) are also similar. At the same time, unlike the tax authorities, the authorities controlling payment of insurance contributions are not entitled to suspend operations on payers’ accounts, seize documents or put property under distraint.
The law permits a field audit of an of insurance contribution payer only once every three years. The controlling authorities are also entitled to perform joint audits. Repeat field audits are not allowed. The law does not require pretrial challenging of controlling authority acts. The payer may file an appeal with a higher-level controlling authority or court.
As a result of the reform, Chapter 24 of the Russian Tax Code pertaining to UST is recognised as void from 1 January 2010. All references to UST are to be excluded from the text of the Tax Code (or replaced with insurance contributions where used in the same meaning), as are the regulations on state extra-budgetary funds. It has been established that rights and obligations relating to UST arising in tax periods ending before 1 January 2010 should be exercised in the manner determined by Chapter 24 of the Russian Tax Code.
The law permits expenses incurred under medical service contracts concluded in favour of employees with medical organisations holding appropriate licences for a period of at least one year to be deducted as labour costs for income tax purposes to a maximum of 6 per cent of labour costs.
The consequences of the above federal laws for business entities are manifold. Under the new system, payers will, overall, face a much greater burden owing to increased rates, rejection of the regressive scale, and the absence of any provision for expenses not deductible for income tax purposes being deductible from the insurance contribution base. The burden will only be somewhat lower if the salaries paid to employees are quite high.
Certain categories of payer eligible for reduced UST rates or UST benefits will be deprived of these privileges. The conditions will be worse, for example, for IT organisations, residents of technology implementation zones, agricultural producers and employers of disabled persons.
Some categories are not, however, expected to incur significant losses as a result of the transition to the new system (individual entrepreneurs, notaries, attorneys-at-law). Those making payments to foreign citizens and stateless persons staying temporarily in the Russian Federation will benefit from such payments being excluded from the insurance contribution base (while under the Tax Code of the Russian Federation said payments are subject to UST).
Complications associated with the above developments include creation of new controlling authorities responsible for auditing payers, this resulting in increased administrative costs, time outlays and other expenditures incurred by the payer.
For additional information, please contact:
Tatiana Vasilieva, Head of Tax Practice,
T: +7 495 287-4444
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