How Is FOP Business Activity Counted Towards Pension Insurance Record?

Insurance record is one of the key factors determining a person’s pension rights in Ukraine. At the same time, many Ukrainians choose to conduct their own business rather than work as employees. One of the most common forms of doing business is registration as an individual entrepreneur (sole proprietor, commonly referred to in Ukraine as an FOP).

An important question for entrepreneurs approaching retirement is whether periods during which they conducted business as an FOP are counted towards their pension insurance record.

On 1 January 2004, the Law of Ukraine No. 1058-IV of 9 July 2003 “On Compulsory State Pension Insurance” entered into force and introduced a fundamentally different approach to calculating pension insurance record.

For periods beginning on 1 January 2004, the acquisition of insurance record is generally linked to the payment of compulsory social insurance contributions. Consequently, where the required contributions have not been paid, the relevant period may not be fully counted towards a person’s pension insurance record.

Periods before 1 January 2004 are governed by the rules that applied at the relevant time. Therefore, when determining a person’s pension rights, it is important to distinguish between employment under an employment contract and periods during which the person independently conducted business activities.

The calculation of periods of entrepreneurial activity has a number of specific features. Ukrainian legislation includes individual entrepreneurs among persons subject to compulsory state social and pension insurance. However, the rules applicable to a particular period may depend on the taxation system used by the entrepreneur.

In particular, it is necessary to distinguish between FOPs operating under the general taxation system and FOPs using the simplified taxation system. Historically, different documentary and contribution requirements applied to these categories when confirming pension insurance record.

FOP under the general taxation system

Periods of entrepreneurial activity under the general taxation system before 1 July 2000 may require documents confirming payment of the relevant pension or insurance contributions in order to be counted towards the pension record.

For later periods, information concerning payment of contributions may be verified through the state system of personalised records and the State Register of Compulsory State Social Insurance. Therefore, the Pension Fund of Ukraine may obtain the relevant information directly from the available electronic records.

FOP under the simplified taxation system

Special rules have historically applied to entrepreneurs using the simplified taxation system. For certain periods before 1 January 2004, entrepreneurial activity may be confirmed by documents establishing that the person was officially registered and conducted business during the relevant period.

For periods beginning on 1 January 2004, however, the decisive issue is generally whether the required insurance contributions were paid and whether information concerning those payments is recorded in the personalised social insurance system.

This means that registration as an FOP by itself does not necessarily guarantee that every month of entrepreneurial activity after 1 January 2004 will be counted towards the pension insurance record. The Pension Fund must also determine whether the statutory contribution requirements applicable to the relevant period were satisfied.

For historical periods of entrepreneurial activity under the simplified taxation system, the relevant supporting documents may include:

• a special trade patent;
• a certificate confirming payment of the single tax;
• a patent confirming payment of a fixed amount of personal income tax;
• a certificate confirming payment of insurance contributions;
• other official documents confirming entrepreneurial activity and payments required under the legislation applicable at the relevant time.

For periods covered by the personalised insurance record system, confirmation may generally be obtained from the Register of Insured Persons, which contains information concerning insurance record, income and contributions reported for the insured person.

Therefore, when preparing documents for a pension, an entrepreneur should check whether all periods of business activity are reflected in the Pension Fund’s records and whether the required contributions were recorded for the relevant months.

If certain periods of entrepreneurial activity are missing from the insurance record, it is necessary to establish why the Pension Fund has not counted them. Depending on the period concerned, the issue may be resolved by obtaining archival documents, tax records, certificates confirming registration as an entrepreneur, evidence of contribution payments or information from the Register of Insured Persons.

Thus, periods of activity as an individual entrepreneur may be counted towards pension insurance record in Ukraine, but the applicable rules depend on when the business activity took place, the taxation system used and whether the required insurance contributions were paid and properly recorded.