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Tax obligations of employees working in technology park residents
Tax obligations of employees working in technology park residents
According to the Tax Code, the income of individuals is taxed differently depending on whether they work in the oil and gas, public or private sectors. But in this case, how are the tax liability and social payments of employees working in entrepreneurial entities operating as residents of the technology park calculated?
Tax expert Nusrat Khalilov clarifies the question on the topic.
According to Article 3 of the Tax Code, a resident of a technology park is a legal entity operating in the technology park or outside the technology park, which has received a registration certificate of the technology park in accordance with the procedure established by the relevant executive authority, or an individual who carries out entrepreneurial activities without creating a legal entity.
The relevant legislative act has been amended regarding the calculation of income tax and social insurance contributions from employees working in entrepreneurial entities operating as residents of the technology park. According to Article 101.7 of the Tax Code, the withholding is determined as follows:
- 0 percent for 3 years from January 1, 2023, if the monthly income is up to 8,000 manat, and 5 percent of the amount exceeding 8,000 manat;
- 5 percent of the monthly income for 7 years from January 1, 2026.
Example 1: An employee working for a taxpayer who is a resident of a technology park and carries out system integration, software development and development activities outside the technology park had an income from hired work of 9,500 manat (salary) in September 2023. Let's calculate the amount of income tax to be withheld from the employee's salary:
According to Article 101.7.1 of the Tax Code, income tax is not withheld if the monthly income is up to 8,000 manat. If it is more than 8,000 manat, income tax in the amount of 5% of the above amount must be withheld. That is:
9,500 – 8,000 = 1,500 manat;
1,500 x 5% = 75 manat.
This exemption is valid until January 1, 2026. After that, income tax will be calculated at the rate of 5 percent of income for a period of 7 years. That is:
9,500 x 5% = 475 manat.
According to Article 14.8 of the Law “On Social Insurance”, the mandatory state social insurance premium for residents of technology parks (including persons carrying out system integration, software development and development activities), their contractors and subcontractors who have concluded a direct contract with the contractor, as well as individuals (excluding foreigners and stateless persons) involved by these persons for the purposes of that activity for a period of 10 years from January 1, 2023 will be determined as one of the following, depending on their choice:
• four times the minimum monthly wage or
• income from hired work.
The insured, i.e. the employee, shall submit written information about his choice to the insurer, i.e. the employer, by January 15 of each year, and this choice shall not be changed until the end of the calendar year. If the insured does not submit written information about his choice within the specified period for the next calendar year, the insurer shall apply the choice of that insured in the previous year. In relation to a newly hired person from the specified category during the calendar year, the option specified in the application for concluding a contract is applied.
Example 2: The income of an employee working for a taxpayer operating outside the technology park as a resident of the technology park, carrying out system integration, software development and development activities, was 9,500 manats (salary) in September 2023. Let's determine the amount of social insurance premiums that the employee must pay for each of the specified options:
1. Four times the minimum monthly wage:
Taking into account that the current minimum monthly wage is 345 manats, the calculation will be as follows:
345 x 4 = 1,380 manats.
a) If there is a social insurance premium for the state sector;
Insurer: 1,380 x 22% = 303.6 manat;
Insured: 1,380 x 3% = 41.4 manat.
b) If there is a social insurance contribution in the private sector;
Insurer: (200 x 22% ) + (1,180 x 15%) = 221 manat;
Insured: (200 x 3%) + (1,180 x 10%) = 124 manat.
2. In accordance with Articles 14.3 and 14.4 of the Law "On Social Insurance"
a) If there is a social insurance contribution in the public sector;
Insurer: 9,500 x 22% = 2,090 manat;
Insured: 9,500 x 3% = 285 manat.
b) If there is a social insurance contribution for the private sector;
Insurer: (200 x 22% ) + (9,300 x 15%) = 1,439 manat;
Insured: (200 x 3%) + (9,300 x 10%) = 936 manat.
According to the Tax Code, the income of individuals is taxed differently depending on whether they work in the oil and gas, public or private sectors. But in this case, how are the tax liability and social payments of employees working in entrepreneurial entities operating as residents of the technology park calculated?
Tax expert Nusrat Khalilov clarifies the question on the topic.
According to Article 3 of the Tax Code, a resident of a technology park is a legal entity operating in the technology park or outside the technology park, which has received a registration certificate of the technology park in accordance with the procedure established by the relevant executive authority, or an individual who carries out entrepreneurial activities without creating a legal entity.
The relevant legislative act has been amended regarding the calculation of income tax and social insurance contributions from employees working in entrepreneurial entities operating as residents of the technology park. According to Article 101.7 of the Tax Code, the withholding is determined as follows:
- 0 percent for 3 years from January 1, 2023, if the monthly income is up to 8,000 manat, and 5 percent of the amount exceeding 8,000 manat;
- 5 percent of the monthly income for 7 years from January 1, 2026.
Example 1: An employee working for a taxpayer who is a resident of a technology park and carries out system integration, software development and development activities outside the technology park had an income from hired work of 9,500 manat (salary) in September 2023. Let's calculate the amount of income tax to be withheld from the employee's salary:
According to Article 101.7.1 of the Tax Code, income tax is not withheld if the monthly income is up to 8,000 manat. If it is more than 8,000 manat, income tax in the amount of 5% of the above amount must be withheld. That is:
9,500 – 8,000 = 1,500 manat;
1,500 x 5% = 75 manat.
This exemption is valid until January 1, 2026. After that, income tax will be calculated at the rate of 5 percent of income for a period of 7 years. That is:
9,500 x 5% = 475 manat.
According to Article 14.8 of the Law “On Social Insurance”, the mandatory state social insurance premium for residents of technology parks (including persons carrying out system integration, software development and development activities), their contractors and subcontractors who have concluded a direct contract with the contractor, as well as individuals (excluding foreigners and stateless persons) involved by these persons for the purposes of that activity for a period of 10 years from January 1, 2023 will be determined as one of the following, depending on their choice:
• four times the minimum monthly wage or
• income from hired work.
The insured, i.e. the employee, shall submit written information about his choice to the insurer, i.e. the employer, by January 15 of each year, and this choice shall not be changed until the end of the calendar year. If the insured does not submit written information about his choice within the specified period for the next calendar year, the insurer shall apply the choice of that insured in the previous year. In relation to a newly hired person from the specified category during the calendar year, the option specified in the application for concluding a contract is applied.
Example 2: The income of an employee working for a taxpayer operating outside the technology park as a resident of the technology park, carrying out system integration, software development and development activities, was 9,500 manats (salary) in September 2023. Let's determine the amount of social insurance premiums that the employee must pay for each of the specified options:
1. Four times the minimum monthly wage:
Taking into account that the current minimum monthly wage is 345 manats, the calculation will be as follows:
345 x 4 = 1,380 manats.
a) If there is a social insurance premium for the state sector;
Insurer: 1,380 x 22% = 303.6 manat;
Insured: 1,380 x 3% = 41.4 manat.
b) If there is a social insurance contribution in the private sector;
Insurer: (200 x 22% ) + (1,180 x 15%) = 221 manat;
Insured: (200 x 3%) + (1,180 x 10%) = 124 manat.
2. In accordance with Articles 14.3 and 14.4 of the Law "On Social Insurance"
a) If there is a social insurance contribution in the public sector;
Insurer: 9,500 x 22% = 2,090 manat;
Insured: 9,500 x 3% = 285 manat.
b) If there is a social insurance contribution for the private sector;
Insurer: (200 x 22% ) + (9,300 x 15%) = 1,439 manat;
Insured: (200 x 3%) + (9,300 x 10%) = 936 manat.