March 2013

Social Tax Refund for Job Creation

On 20 March 2013 the Resolution of the Cabinet of Ministers of Ukraine No. 153 enacting the Procedure for Refund to Employers of a Part of the Unified Mandatory State Social Insurance Tax became effective (the "Procedure").

The Procedure determines the mechanism for refund by the Pension Fund of Ukraine (the "Fund") to employers of 50 percent of unified mandatory state social insurance tax (the "Unified Social Tax") for each person who has been hired to a new position. The position is recognized as new if it is created (i) in connection with establishment of a new business undertaking, except where it is founded as a result of termination of another legal entity, or (ii) in connection with increase in headcount provided that there has been no decrease in the average monthly headcount within the preceding 12 months, or (iii) through modernization or change in production technology that requires new knowledge and skills of an employee.

Under the Procedure, employers could qualify for a Unified Social Tax refund if, starting from 2013, they (i) employ persons to new positions and, in addition to that, (ii) for at least 12 months, pay to such employees a monthly salary equal to at least three minimum wages. If these requirements are met, the employer is entitled to receive, within the following year, a refund of 50 percent of the assessed Unified Social Tax obligations provided that within this period the new employees continue receiving the salary equal to at least three minimum wages.

To obtain the refund, the employer must submit a standard form certificate to its local department of the Fund within 12 months after filling a new position. The certificate must contain information such as employee's occupation and start date.

Upon receiving the certificate, the Fund must:

  • within 5 business days, request the State Labour Inspectorate of Ukraine (the "Inspectorate") to confirm the information provided by employer. The Inspectorate notifies the Fund about the results of review within one month;
  • decide on the Unified Social Tax refund within 10 days after receipt of (i) the Inspectorate's notification, as well as (ii) the data contained in the employer's report on the assessed Unified Social Tax (in particular, on the number of created positions, and the level of new employees' salaries).

An employer forfeits the right to a refund if such an employer reduces headcount or payroll. If employment of the person hired to a new position is terminated, employer retains the right to a refund only provided that employer hires a new person to fill the vacancy. The total salaries of the dismissed and new employee that are payable within one calendar month must still be not less than three minimum wages.

Under the Law of Ukraine On Employment of Population, the Unified Social Tax can also be refunded to employers that hire the unemployed referred by the state employment center and keep them employed for at least two years provided that (i) such persons qualify as those having limited competitiveness in the employment market, or (ii) such employers are small business entities that hire persons to new positions in priority industries. However, the procedure for refund in such cases has not been approved yet.

For further information please contact senior associate Svitlana Chepurna
and associate Inesa Letych

© Asters 2013
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