Mandatory state social insurance payments for individual entrepreneurs will be optimized

As is known, the period for calculating the social insurance contributions of individual entrepreneurs at the current rates expires on January 1, 2026. Therefore, an amendment to the Law “On Social Insurance” is being proposed. According to the current law, individual entrepreneurs pay social insurance contributions for themselves in the amount of 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 Sumgait and Ganja, 80% in other cities, 60% in district administrative centers and settlements, and 50% in rural areas).

If the legislation is not amended starting next year, the social insurance burden of individual entrepreneurs would have to increase depending on their field of activity. However, according to the proposed amendment to the Law “On Social Insurance,” individual entrepreneurs will pay social insurance contributions at a rate of 2% of their turnover beginning next year. In this case, the minimum amount of the insurance contribution will be 15% of the minimum wage (i.e., 60 manats), and the maximum amount will equal one minimum wage (i.e., 400 manats.

Let us explain the change with examples.

For a micro-entrepreneur operating in the trade sector in Baku with a monthly income of 5,000 manats, the monthly social insurance payment currently totals 100 manats. If no legislative changes were made, this amount would double to 200 manats. However, under the proposed model, applying the 2% rate to monthly income, the calculated social insurance payment (100 manats) will remain the same as the current burden. For a micro-entrepreneur in the same field earning 3,500 manats per month, the social insurance payment will decrease from 100 manats to 70 manats.

For a micro-entrepreneur operating in the service sector in Baku with a monthly income of 3,000 manats, the social insurance payment will decrease from 100 manats to 60 manats. In the regions, for micro-entrepreneurs working in the trade sector with a monthly income of 1,500 manats, the proposed change will prevent their social insurance payments from increasing more than threefold, and the amount will be set at 60 manats.

As seen, instead of standard fixed amounts tied to the minimum wage regardless of income size, the proposed legislative change is expected to reduce the social insurance burden for individual entrepreneurs with lower monthly incomes.

It should be noted that 80% of individual entrepreneurs classified as active micro-entrepreneurship entities are those whose annual income is up to 60,000 manats.

At the same time, the social insurance contributions paid by an individual entrepreneur for themself are in no case a tax and are accumulated in their pension capital, to be used for paying that person a pension in the future.