Roman Bykov, Senior Consultant of MinTax LLP in his article tells about some of the changes that have occurred in the legislation of the RoK[1] on pension provision since January 1, 2020.

In connection with frequently asked questions regarding the payment of obligatory pension charges (OPC) for individuals who receive income under civil/legal contracts (CL contracts), we will consider successively all changes in the legislative acts of the RoK, governing the charging of OPC for these individuals.

As it is known, an obligation to assess and pay OPC for individuals under CL contracts arose following the amendments introduced on 5 July 2018 to the RoK Law #105-V dated 21 June 2013 “On Pension Provision in the RoK” (RoK Law on Pension Provision).

The change affected paragraph 4 of Article 25 of the RoK Law on Pension Provision which was set out as follows:

“4. For lawyers, private bailiffs, private notaries, professional mediators, individual entrepreneurs (IE), as well as individuals who receive income under civil-legal (CL) contracts, OPC in their own favour payable to the UAPF[2], assessed for each month shall be set at 10 percent from income received”.

The context of paragraph 4 of Article 25 of RoK Law on Pension Provision “…OPC in their own favour” meant that individuals earning income under CL contracts were obliged to independently assess and transfer OPC in their own favour.

Later, on 9 October 2018 amendments were made to the Decree of RoK Government  #1116 dated 18 October 2013 “On approval of the Rules and deadlines for the assessment, withholding (accrual) and transfer of OPC, obligatory professional pension charges to the UAPF and penalties on them” (hereinafter – OPC Rules).

Paragraph 9 of Chapter 3 “Transferring OPC to the UAPF” of the OPC Rules was supplemented by sub-paragraph 8 set out as follows:

“OPC that have been withheld (accrued) shall be transferred to the state corporation:

by individuals receiving income under civil-legal contracts – no later than the 25th day of the month following the month of receipt of income.”.

This also supported the obligation for an independent assessment and transfer of OPC by individuals receiving income under CL contracts.

But, already the RoK Law “On Introducing Amendments to Certain Legislative Acts of the RoK Concerning Employment” #203-VI dated 26 December 2018 introduced amendments to the Law on Pension Provision with effect from 1 January 2019.

Thus, paragraph 4 of Article 25 of the RoK Law on Pension Provision was set out as follows:

“4. For private practitioners, IE, as well as individuals earning income under civil-legal contracts the subject of which is the performance of work (provision of services), with the exception of the case provided for by sub-paragraph 5) of paragraph 2 of Article 24 of this Law, OPC in their own favour payable to the UAPF shall be set at the rate of 10 percent of income received”.

Paragraph 2 of Article 24 of the RoK Law on Pension Provision was supplemented by sub-paragraph 5 as follows:

“Individuals who are relieved from payment of OPC to the UAPF shall include those persons who are working under an employment contract, earning income under CL contracts the subject of which is the performance of work (provision of services) concluded with individuals who are not tax agents.”.

Paragraph 28 of Article 1 of the RoK Law on Pension Provision was supplemented by the following provisions:

‘The tax agents in respect of OPC payment for individuals earning income under CL contracts the subject of which is the performance of work (provision of services) shall be considered to mean tax agents defined by the tax legislation of the RoK (hereinafter – tax agents).”.

In addition, sub-paragraph 1 of paragraph 7 of Article 24 of the RoK Law on Pension Provision was set out as follows:

“OPC that have been withheld (accrued) shall be transferred to the State Corporation by IEs and legal entities, private practitioners from income paid to employees, as well as individuals under CL contracts the subject of which is the performance of work (provision of services), – no later than the 25th day of the month following the month of payment of income.”.

As we can see, amendments were made to the RoK Law on Pension Provision according to which, with effect from January 1, 2019, tax agents are obliged to transfer OPC for individuals who receive income under CL contracts.

The Decree of the RoK Government #263 dated 8 May 2019 introduced amendments to the OPC Rules which determined that the changes shall apply to relations that arose after 8 January 2019.

The foregoing sub-paragraph 8 of paragraph 9 of Chapter 3 of the OPC Rules was deleted.

Sub-paragraph 1 of paragraph 9 of Chapter 3 of the OPC Rules was set out as follows:

“OPC that have been withheld (accrued) shall be transferred to the State Corporation by IEs and legal entities, private practitioners from income paid to employees and individuals with whom CL contracts were concluded – no later than the 25th day of the month following the month of payment of income.”.

However, some differences remained in interpreting the RoK Law on Pension Provision in respect of paragraph 4 of Article 25, in particular: “for individuals earning income under civil-legal contracts, OPCs in their own favour payable to the UAPF shall be set at the rate of 10 percent of income received”.

In order to avoid an ambiguous interpretation of the norms of the RoK Law “On Pension Provision”, the RoK Law “On Introducing Amendments and Additions to Certain Legislative Acts of the RoK…” #287-VI dated 26 December 2019 introduced the following amendments to the RoK Law On Pension Provision effective from 1 January 2020:

Paragraph 4 of Article 25 of the RoK Law on Pension Provision is set out as follows:

“For private practitioners, individual entrepreneurs, OPCs in their own favour payable to the UAPF shall be set at the rate of 10 percent from income received”.

Article 25 of the RoK Law on Pension Provision was supplemented by paragraph 4-1 as follows:

“For individuals earning income under civil-legal contracts the subject of which is the performance of work (provision of services), with the exception of the case provided for by sub-paragraph 5) of paragraph 2 of Article 24 of this Law, OPC payable to the UAPF shall be set at the rate of 10 percent of income received”.

As you can see, the phrase “in their own favour” was removed from the norm governing the transfer of OPC of individuals who receive income under civil-legal contracts.

Summarizing all the changes in Kazakhstan’s legislation regarding the payment of OPC by individuals receiving income under CL contracts, one can make a conclusion that, from July to December 2018, the assessment and transfer of OPC by individuals receiving income under CL contracts should be carried out by such individuals independently.

Since January 1, 2019, this obligation has been assigned to tax agents, that is – individual entrepreneurs, legal entities, private practitioners who have entered into civil/legal contracts with these individuals.

[1] Republic of Kazakhstan.
[2] Unified Accumulative Pension Fund