Quite often, in summer, companies involve university students and students of vocational schools for undertaking the training and practice.How should the payment to practitioners and trainees be taxed?
PIT
Regardless of whether payments to practitioners and trainees, who are not included in the state of the company or do not work under fixed-term employment contracts, are made, the taxation of personal income tax (hereinafter − PIT) of their income should be made on a general basis.
The taxation of personal income is regulated by sec. IV of the Tax Code of Ukraine (hereinafter − TCU), para. 163.1 of which specifies that the subject of taxation of a taxpayer is the total monthly (annual) taxable income.
Income from a source of origin from Ukraine is any income received by residents or non-residents, including any kind of their activities in the territory of Ukraine (including payment (accrual) of remuneration by foreign employers), its continental shelf, in the exclusive (maritime) economic zone, including, but not exclusively, income in the form of wages, other payments and remuneration paid in accordance with the terms of the labor and civil contract (para. 14.1.54 of TCU).
According to para. 168.1.1 of TCU, the tax agent, who accrues (pays, provides) taxable income in favour of a taxpayer, is required to withhold PIT at his/her expense using the tax rate specified in Art. 167 of TCU, − 18%.
The income, which is taxed by PIT, is also the subject of taxation by the war tax at the rate of 1.5% (sub-para. 1.1 of para. 161 of sub-sec. 10 of sec. XX of TCU).
USC
Regarding the unified social contribution (hereinafter − USC), in accordance with para.1 of sec. 1 of Art. 7 of the Law of Ukraine “On the Accrual and Registration of the Unified Contribution to the Mandatory State Social Insurance” of 08.07.2010, No. 2464-VI (hereinafter − Law No. 2464) determined that the basis of accrual of USC for companies, institutions and organizations that use the labor of individuals on the terms of an employment agreement (contract) or on other terms, stipulated by the law, is the sum of the salary paid to each insured person by types of payments, which include the basic and additional wages, other incentive and compensatory payments, including in kind, determined in accordance with the Law of Ukraine “On Labor” of 24.03.1995, No. 108/95-ВР, and the amount of remuneration to individuals for the execution of works (providing of services) under civil contracts.
Consequently, the amount of the salary, paid by the company to the trainee during the period of professional training in accordance with the tasks provided, is the basis for the accrual of the USC.
As for the accrual of USC for the payment of trainees, some time the tax authorities agreed that if students who are undertaking industrial practice are not full-time employees of the company, so they are not in labor relations with them (the letter of the Ministry of Social Policy No. 107/021/150-12 of 20.08.2012), and therefore the wages paid to them during the undergoing of the industrial practice are not the basis of the accrual of USC. The only social contribution at a rate of 22% is payable only in cases where fixed-term employment contracts are concluded with practitioners. If employment or civil contract was not concluded with a trainee, the payout for the undertaking of practice is the subject only to the personal income tax.
But the SFSU, in its letter No. 21700/6/99-99-17-03-03-15 dated 13.10.2015, states that the salary (i.e., payments made under other conditions stipulated by law) to students undertaking the industrial practice in the company in accordance with the contract on educational and production practice, is also the basis of accrual of USC.
Determination of types of payments related to the basic, additional wages and other incentive and compensatory payments, with the accrual of the unified contribution is provided by the Regulations on wage statistics, approved by the order of the State Statistics Committee of Ukraine of 13.01.04, No. 5 (para. 5 of sub-sec. 3 of sec. IV Guidelines on the procedure for accrual and payment of the unified contribution to the compulsory state social insurance, approved by the order of the Ministry of Finance of 20.04.2015, No. 449).
According to para.2.1.8 Instruction No. 5 to the wage fund is the remuneration of employees, who are not in the state of the company (provided that the calculations are carried out directly with employees by the company).
In addition, the Resolution of the Cabinet of Ministers of Ukraine dated 22.12.2010, No. 1170 approved the List of types of payments made at the expense of employers, for which the unified contribution is not accrued, which does not include payments paid by the company to a practitioner for the performance of his professional work (explanation in category 301.01 “ZIR”).
At the same time, the company accrues and withholds the unified contribution from the student’s total salary (and not 50% of the amount belonging to the employee).
Article 8 of Law No. 2464 stipulates that if the base of the accrual of the unified contribution (except for remuneration under civil contracts) does not exceed the amount of the minimum wage established by law for the month for which the salary (income) is calculated, the amount of the unified contribution is calculated as a product of the size of the minimum wage established by law for the month in which the salary (income) is accrued, and the rates of the unified contribution established for the respective category of payer.
When calculating wages (incomes) for individuals from sources other than the main place of work, the rates of unified payment, established by part five of Art.8 of Law No. 2464, should be applied to a defined base of charges, regardless of its size.
Consequently, for students undertaking industrial practice at the company, the amount of USC is accrued on the actual salary, regardless of its size (Individual Tax Advice of the Central Administration of the State Fiscal Service of Sumy Region dated 13.05.2017, No. 168/6/99-99-13-02-03-15/ІПК).
At the same time, if the trainees are enrolled to the state of the company for a fixed-term employment contract, the company accrues the USC in the amount not less than the minimum insurance contribution.
