Recognition of Expenses for the Founder’s Mandatory Social Security Contributions

According to current legislation, taxes, fees, and other mandatory charges that are independent of business results are recognized as expenses in the tax balance only when actually paid in the relevant tax period.

For mandatory social security contributions of a founder, expenses recorded in the accounting books are recognized in the tax balance exclusively in the period when the contributions are actually paid. Accrued but unpaid contributions are not recognized as expenses. If payment is late, any interest or penalties are not recognized as expenses, regardless of when they are paid.

Retroactive Charges and Tax Treatment

In November of last year, the Tax Administration started filing PP OD-O declarations ex officio for founders registered to represent and manage a company without an employment contract, for whom contributions were not paid on time. These retroactive charges apply to periods starting from October 2021.

If a material error from prior periods is identified and corrected by reducing the opening balance of retained earnings by the amount of accrued contributions, the taxpayer is not required to submit amended tax returns for previous periods, since the expense is only recognized in the period of actual payment.

Statute of Limitations

The Tax Administration’s right to determine and collect contributions for pension, disability, and health insurance is not subject to limitation.
However, unemployment insurance contributions are subject to limitation and expire five years from the start of the limitation period.

Founder’s Contribution Obligations

For a founder who works in their own company without an employment contract:

– If not insured on another basis, they pay all three social contributions at the minimum base;

– If already insured on another basis (e.g., employed elsewhere, self-employed, or a pensioner), they pay only the pension and disability contribution (PIO).