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Mandatory state social insurance payments for individual entrepreneurs will be optimized
Mandatory state social insurance payments for individual entrepreneurs will be optimized
As is known, the period for calculating social insurance contributions of individual entrepreneurs based on the current rates ends on January 1, 2026. Therefore, it is proposed to amend the Law “On Social Insurance.” Under the current law, individual entrepreneurs pay social insurance contributions equal to 50% of the minimum monthly wage in the construction sector, and 25% in other sectors (such as trade, catering, translation, accounting, and other service areas). Regional coefficients are also applied (100% in Baku, 90% in Sumgayit and Ganja, 80% in other cities, 60% in district administrative centers and settlements, and 50% in rural areas).
If no amendments are made to the legislation next year, the social insurance burden of individual entrepreneurs would have to increase depending on the sector in which they operate. However, according to the proposed amendment to the Law “On Social Insurance,” starting next year individual entrepreneurs will pay social insurance contributions at a rate of 2% of their turnover. In this case, the minimum contribution amount will be 15% of the minimum wage (60 AZN), and the maximum amount will equal the minimum wage (400 AZN).
Let us explain the change with examples.
If a micro-entrepreneur operating in the trade sector in Baku with a monthly income of 5,000 AZN currently pays 100 AZN per month in social insurance contributions, this amount would double to 200 AZN if no amendments were made. However, under the proposed new model, the contribution calculated at a rate of 2% of monthly income (100 AZN) will remain the same as the current burden. For a micro-entrepreneur in the same sector with a monthly income of 3,500 AZN, the monthly social insurance contribution will decrease from 100 AZN to 70 AZN.
For a micro-entrepreneur operating in the services sector in Baku with a monthly income of 3,000 AZN, the social insurance contribution will decrease from 100 AZN to 60 AZN. In the regions, for micro-entrepreneurs engaged in trade with a monthly income of 1,500 AZN, the proposed amendments will prevent their contributions from increasing more than threefold, and the amount will be set at 60 AZN.
As seen, regardless of the level of income, the proposed legislative changes are expected to reduce the social insurance burden for individual entrepreneurs with low monthly incomes, replacing the standardized contributions based on the minimum wage.
It should be noted that 80% of individual entrepreneurs classified as micro-business entities have annual incomes of up to 60,000 AZN.
At the same time, social insurance contributions paid by an individual entrepreneur for himself are not taxes under any circumstances. These payments are accumulated into the person’s pension capital and are later used to finance their future pension.
As is known, the period for calculating social insurance contributions of individual entrepreneurs based on the current rates ends on January 1, 2026. Therefore, it is proposed to amend the Law “On Social Insurance.” Under the current law, individual entrepreneurs pay social insurance contributions equal to 50% of the minimum monthly wage in the construction sector, and 25% in other sectors (such as trade, catering, translation, accounting, and other service areas). Regional coefficients are also applied (100% in Baku, 90% in Sumgayit and Ganja, 80% in other cities, 60% in district administrative centers and settlements, and 50% in rural areas).
If no amendments are made to the legislation next year, the social insurance burden of individual entrepreneurs would have to increase depending on the sector in which they operate. However, according to the proposed amendment to the Law “On Social Insurance,” starting next year individual entrepreneurs will pay social insurance contributions at a rate of 2% of their turnover. In this case, the minimum contribution amount will be 15% of the minimum wage (60 AZN), and the maximum amount will equal the minimum wage (400 AZN).
Let us explain the change with examples.
If a micro-entrepreneur operating in the trade sector in Baku with a monthly income of 5,000 AZN currently pays 100 AZN per month in social insurance contributions, this amount would double to 200 AZN if no amendments were made. However, under the proposed new model, the contribution calculated at a rate of 2% of monthly income (100 AZN) will remain the same as the current burden. For a micro-entrepreneur in the same sector with a monthly income of 3,500 AZN, the monthly social insurance contribution will decrease from 100 AZN to 70 AZN.
For a micro-entrepreneur operating in the services sector in Baku with a monthly income of 3,000 AZN, the social insurance contribution will decrease from 100 AZN to 60 AZN. In the regions, for micro-entrepreneurs engaged in trade with a monthly income of 1,500 AZN, the proposed amendments will prevent their contributions from increasing more than threefold, and the amount will be set at 60 AZN.
As seen, regardless of the level of income, the proposed legislative changes are expected to reduce the social insurance burden for individual entrepreneurs with low monthly incomes, replacing the standardized contributions based on the minimum wage.
It should be noted that 80% of individual entrepreneurs classified as micro-business entities have annual incomes of up to 60,000 AZN.
At the same time, social insurance contributions paid by an individual entrepreneur for himself are not taxes under any circumstances. These payments are accumulated into the person’s pension capital and are later used to finance their future pension.