In her article, S. Sultanova, Senior Manager, Auditor of MinTax Audit LLP, answers a question – whether the entity that is a resident of the Republic of Kazakhstan (RoK) has to charge social assessments in respect of foreign employees who are pensioners and residents of the EAEU countries in which the retirement age is lower than that established in the RoK?
The Agreement on EAEU was signed on 29 May 2014 in Astana, ratified by the Law of the RoK dated 14 October 2014 and came into effect from 1 January 2015. Initially, the EAEU was comprised of Kazakhstan, Russia, Belarus and Armenia.
Kyrgyzstan signed the treaty on accession to EAEU on 23 December 2014, in May 2015 additional protocols were signed to the EAEU Treaty and from 18 August 2015 Kyrgyzstan became a full member of the EAEU.
The EAEU is a regional economic integration organization which provides for the freedom of movement of goods, work, services, capital and labor, carrying out coordinated, coherent or unified policy in certain sectors of the economy, in particular – creating a single customs territory within the borders of the united states, with the use of a single customs tariff and common measures of non-tariff regulation.
At present, paragraph 3 of Article 98 of the EAEU Agreement states that social security (social insurance) (except for pensions) of working people of member states and their families is carried out on the same terms and following the same procedure as for citizens of the country of employment.
Citizens of the EAEU member states being the participants of the RoK system of mandatory social insurance, have the right to apply for benefits in connection with maternity and childbirth, and in connection with child care when he reaches the age of one year, to the local office of the State Center for Pension Payments at the citizens’ place of residence.
In the RoK the mandatory social insurance is based on the Law dated 25 April 2003 ‘On Mandatory Social Insurance’ (hereinafter – ‘Law on SI’).
Paragraph 2 of Article 3 of the Law on SI states that, if the international agreement ratified by the RoK establishes rules other than those contained in this Law, then the rules of the international agreement shall apply.
Therefore, when the RoK resident company concludes an employment contract with individuals who are pensioners and residents of the EAEU member states, the employer must transfer social assessments at 5% of the employees’ wage fund to the SFSI, regardless of whether the employee has a residence permit and (or) permanent residence in the RoK.
At the same time, pursuant to the effective legislation of the RoK, personalized accounting of social assessments is maintained for each employee on the basis of the individual identification number (IIN).
Thus, prior to beginning of employment in the RoK, non-resident individuals from the EAEU member states must have IIN, which is the basis for transferring social assessments to the SFSI.
According to sub-paragraph 4) of Article 1 of the Law on SI, item subject to charging social assessments shall be employer’s expenses paid to the employee in the form of income for work performed or services rendered.
Pursuant to Article 8 of the Law on SI, mandatory social insurance shall be applied to employees, self-employed individuals, including foreigners and stateless persons permanently residing in the RoK who are engaged in business generating income in the territory of the RoK, with the exception of those who receive pensions from the Centre.
In turn, according to the Law on provision of pensions in the RoK, the recipient of pension payments is an individual who was assigned the state basic pension payment and (or) pension payments from an authorized organization, and (or) pension benefits for length of service, and (or) having the right to receive pension payments from the uniform accumulative pension fund and (or) voluntary pension savings fund.
Thus, in our opinion, to be exempted from social assessments, the employee must receive pension payments from the pension fund (State Center for Pension Payments) in the RoK.
Conclusion: Based on the foregoing, the RoK resident company is obliged to transfer social assessments at the rate of 5% of the wage fund of foreign employees who are pensioners and residents of the EAEU countries where the retirement age is lower than the retirement age established in Kazakhstan.
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