Question 21. What is the Targeted Social Contribution?
The Targeted Social Contribution is a social fee payment made to the State budget of the Republic of Armenia in the way and amount prescribed by Law.
Question 22. What is the Targeted Social Contribution Rate?
The Targeted Social Contribution Rate is 5% of Gross Salary. Starting from July 1st, 2020 in case salary amount exceeds 500 000 AMD Social Contribution rate is calculated by taking the difference between 10% of Gross salary and 25 000 AMD.
Law defines the maximum threshold of Social Contribution object which is 500 000 AMD until the year 2020 and 15-fold of the minimum monthly salary starting from 2020 (Social Contribution amount can not exceed 25 000 AMD until the year of 2020).
If a person gains income from several sources then the payments calculated and made (charged) by the employer (tax agent) out of the amount exceeding the threshold of Social Contribution object are paid back to the person as defined by the RA Government.
Question 23. What is the Cumulative Allocation?
According to the rules prescribed by Law, Cumulative Allocation is the amount allocated in order to achieve mandatory pension fund shares in favor of a person making a social contribution.
Question 24. How is the Cumulative Allocation formed?
The Cumulative Allocation made for (in favor of) a person born prior to January 1st, 1974 or a person born after January 1st, 1964 but who has taken over the responsibility for making targeted social contributions until July 1st, 2017 is comprised from social fee payments and funds allocated from the State budget. In this case the Cumulative Allocation rate is 10% of salary (5% for the social contribution made by an individual, and the rest (5 % but no more than 25000 AMD) as supplemental allocations from the RA State budget.
In other cases (if a person was born after January 1st, 1974) the Cumulative Allocation rate is 5 % of salary.
Question 25. On what basis the Targeted Social Contribution Rate has been set 10%?
The Targeted Social Contribution Rate has also been set taking into account the target goals of pension reforms.
In particular, compensation coefficient has been set nearly 45-50% as a targeted indicator, i.e. pension amount should comprise nearly 45-50% of salary.
In the funded pillar frames pension amount calculation depends on the savings amount which in its turn, besides the accumulation period, is conditioned by the following factors:
1. the amount of accumulative funds
2. the profitability of pension assets (mandatory pension funds) under management
It is worth mentioning that mandatory pension funds profitability is, in its turn, conditioned by the pension funds cycle and the policy of their management.
The targeted social payments in small amounts lead to the significant reduction of system efficiency since the management expenses of fewer assets greatly increase. Meantime, accumulations in small amounts directly lead to small pension pots, which in fact, does not solve the pension reform objective.
Question 26. How are the Targeted Social Contributions regulated for participants receiving minimum monthly wages?
Question 26. How are the Targeted Social Contributions regulated for participants receiving minimum monthly wages?
Question 27: What’s the logic behind 5% co-financing by the State? The State budget is also formed from citizens’ taxes, isn’t it?
In order to achieve its goals, the State carries out certain fiscal policy through tax collection and public expenditure planning.
The State co-financing of targeted social contributions at the rate of 5% is a part of Armenian reformed pension model and, therefore, is also funded from the State budget.
Question 28. What’s the Targeted Social Contribution Rate for an individual entrepreneur?
1. A participant considered to be an individual entrepreneur and in the Tax Field, whose basic annual income does not exceed 6 000 000 AMD has to make a targeted social contribution at 5% of his basic income, while the rest 5% for (in favor of) the participant is refunded from the State budget.
If a participant’s basic annual income exceeds 6 000 000 AMD, the annual payment from the State budget for (in favor of) the participant is 3 000 000 AMD, while the rest of the sum to fulfill the necessary 10% is paid by the participant.
2. An individual entrepreneur has to make a targeted social contribution at the amount of 5000 AMD in case he/she is considered to be:
a taxpayer subject to Presumptive payment as defined by the RA Law “On Presumptive Payment”,
one who performs activities enlisted in the appendix 7 of the RA Law “On Patent Fee”,
a taxpayer performing activities provided by the RA Law ”On Turnover Tax”.
The defined amount is the final liability on targeted social contribution calculated from income gained from activities subject to Presumptive payment as defined by the RA Law “On Presumptive Payment”, enlisted in the appendix 7 of the RA Law “On Patent Fee”, provided by the RA Law ”On Turnover Tax”, and the monthly amount of 5000 AMD for (in favor of ) a participant is paid out of the State budget.
In case a participant temporarily gives up his activities, he does not make a targeted social contribution any more. In this respect there won’t be any allocations from the State budget for (in favor of ) this participant either.
Question 29. When did the Funded Pillar Participants start making Targeted Social Contributions?
The funded pillar has entered into force from July 1st, 2014. The hired employees have to make their first targeted social contributions by August 20th , 2014 out of the salaries received in July, 2014, as well as other income received from service contract.
Notaries, individual entrepreneurs and self-employed persons who are funded pillar participants will make their targeted social contributions annually by April 30th of the year following the reporting year (for the first time by April 30th, 2015). During the reporting year they can also make advance payments of social contributions.
Question 30. What’s going to be with the Mandatory Funded Payments made from January 1st to July 1st, 2014?
Mandatory funded payments made from January 1st to July 1st, 2014 are paid back to participants based on their applications from January 1st to July 1st, 2015. They can submit the very application starting from September 1st, 2014 at the Armenian Central Depository.
Question 31. Who calculates and transfers Targeted Social Contributions for (in favor of) employees?
Employer calculates and transfers targeted social contributions for (in favor) of hired employees as a tax agent, presenting monthly personified report on income and contributions made for each employee.
Individual entrepreneurs, notaries, self-employed persons and employees whose employer is exempt from tax agent liabilities, will calculate and transfer targeted social contributions to the RA State Treasury on their own.
Question 32. What is the employer’s role in the multipillar pension system, particularly in the funded component?
Employer performs exclusively the functions of a tax agent:
He/she electronically registers with the Tax Authority the hired employees and those receiving income from employment or service contract within timeframes and procedures defined by the Law,
he/she calculates and transfers the targeted social contributions of hired employees and those receiving income from service contract who are mandatory pillar participants within timeframes specified for calculating and paying Income tax as defined by the RA Law “On Income Tax”, and at the rate defined by the RA Law “On Funded Pensions”,
he/she files personified calculation in electronic format to the Tax Authority within timeframes defined by the RA Law “On Income Tax”,
In case he/she finds mistakes on their own in calculating the targeted social contributions for previous reporting periods they file (only electronically) the clarified calculation to the Tax body, on the basis of which there will be done recalculation of targeted social contribution liabilities for these very periods.
Notice: if an employer isn’t a tax agent, a participant himself bears the responsibility for calculating and transferring the targeted social contribution.
Question 33. Are the participants engaged in physical participation in targeted social contributions?
According to the RA Law “On Funded Pensions”, employer (tax agent) is responsible for calculating and transferring targeted social contributions (Article 8, paragraph 1) for (in favor of) hired employees and those receiving income from service contract.
Employer makes an electronic registration with the Tax Authority of hired employees and those receiving income from service contract within timeframes and procedures defined by the Law. Employer (acting as a tax agent within timeframes specified for calculating and transferring Income tax as defined by the RA Law “On Income Tax”) calculates and transfers the participants’ targeted social contributions for (in favor of) hired employees and those receiving income from service contract at the rate defined in the Article 7 of the RA Law “On Funded Pensions”.
In other words, hired employees or participants receiving income from service contract have no physical participation in making targeted social contributions.
Participant himself makes a targeted social contribution in the following cases:
• he/she is a notary, individual entrepreneur or self-employed person
• employer of hired employees or those receiving income from service contract is exempt from liabilities of a tax agent
Moreover, a participant, acting as a notary, individual entrepreneur or self-employed person has to make an annual targeted social contribution by May 1st of the following year.
While a hired employee whose employer is exempt from tax agent liabilities makes his targeted social contribution monthly within timeframes specified for an employer (by 20th of the following month).
Question 34. Can a person supervise whether or not the employer has made the targeted social contribution?
A person may apply to his employer for the information about the targeted social contributions made on behalf of the very person. In case an employee cannot get accurate information or has some doubts, he/she may apply to the Tax body. The Tax Authority runs personified Recordkeeping on individuals’ income, on their income tax and social contributions. A personal account is opened at the Tax body for each hired employee, individual entrepreneur, notary and self-employed person. An individual is entitled only to his/her own personal data.
A participant can also request information about his/her accumulated pension funds at the account operators’ offices or at the web page “My Account”.
Question 35. What is Personified Recordkeeping?
The RA State Revenue Committee (the Tax Authority) runs the personified Recordkeeping on income tax and targeted social contributions made by registered employees and their employers, self-employed persons, individual entrepreneurs and notaries in procedures defined by Labor Code. A personal account is opened at the State Revenue Committee for each hired employee, individual entrepreneur, notary and self-employed person based on individual’s public servant’s identification number. Individual’s basic income (salary and other income gained from service contract) for the reporting period (in case of being a hired employee each month, and in case of being an individual entrepreneur, notary and self-employed person each year), income tax and targeted social contribution amounts, calculated and transferred, are registered at individual’s personal account.
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