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Reduced social insurance contribution rates. For whom? What are SMEs?

Amendments to the Tax Code were adopted on March 31, 2020 to change, in particular, the provisions on social insurance contributions: 

From April 01, 2020 small and medium enterprises will apply reduced rates for payment amounts exceeding the minimum wage (RUB 12,130)

How have social insurance contribution rates changed?

 Limits on the amount of payments per employee have been applied in 2020, and if these limits are exceeded, a different rate is applied: 

  • Limit for contributions to the Pension Fund – RUB 1,292,000 per year;
  • Limit for contributions to the Social Insurance Fund – RUB 912,000 per year;
  • No limit for contributions to the Compulsory Medical Insurance Fund. 

How were rates applied before April 01, 2020?

Prior to April 01, 2020 social insurance contributions were calculated as follows: 

  • Pension Fund rate. If the total amount of payment for an employee did not exceed RUB 1,292,000 for the year, then the Pension Fund rate was 22%, and 10% for payments beyond this threshold; 
  • Social Insurance Fund rate. If the total amount of payment for an employee did not exceed RUB 912,000, then the Social Insurance Fund rate was 2.9%, and 0% for payments beyond this threshold;
  • The rate for the contributions to the Compulsory Medical Insurance Fund has not changed and remains at 5.1%. 
  Up to the threshold limit Beyond the threshold limit
Pension Fund 22% 10%
Social Insurance Fund 2,9% 0%
Compulsory Medical Insurance Fund 5,1% 5,1%

Reduced rates from April 01, 2020

Now, the rates for small and medium enterprises are calculated as follows: 

  • For employees whose salary does not exceed the minimum wage of RUB 12,130, the rates remain as they were, i.e. 22%, 2.9% and 5.1%
  • For employees whose salary exceeds RUB 12,130, the following rates are applied: 
    • Pension Fund – 10%
    • Social Insurance Fund – 0%
    • Compulsory Medical Insurance Fund – 5%
  Salary up to RUB 12,130 Salary exceeding RUB 12,130 
Pension Fund 22% 10%
Social Insurance Fund 2,9% 0%
Compulsory Medical Insurance Fund 5,1% 5%

Which companies are small and medium enterprises?

Only small and medium enterprises may apply the new reduced rates. 

  • Small enterprises are those with:
    • Maximum number of employees – 100;
    • Maximum revenue per year – RUB 800 million.
  • Medium enterprises:
    • Maximum number of employees – 250;
    • Maximum revenue per year – RUB 2 billion.
  • The company must be in the SME register as this constitutes one of the signs of SME status under the law. If an organization meets SME criteria but is not in the SME register, then at the request of the organization, tax authorities must rectify this error and record it in the register.

Can a company with a foreign shareholder be recorded in the SME register?

If a Russian limited liability company (OOO) has a foreign shareholder, revenues not exceeding RUB 2 billion and not more than 250 employees, then the restriction on the participation share (49%) to recognize OOO as an SME may not apply. 

If the company is already included in the SME register, then the company will be able to apply the reduced rates for social insurance contributions.

But if the company meets SME criteria and is not yet included in the SME register, it will have to confirm compliance with SME criteria, and only audit organizations can confirm that foreign shareholders are entitled to apply reduced rates. 

Audit organizations provide this information to tax authorities from July 01 to July 05 after which tax authorities may include companies in the register from August 10 onwards. 

So, a foreign organization that meets SME criteria but is not included in the SME register may take all necessary measures to be recorded in the SME register and apply the reduced social insurance contribution rates from August 10. 

Any further questions

If you wonder whether your company is an SME, please feel free to contact us. We are always happy to help. 

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