Ukraine: Employee Benefits Update

July 2016: The following changes in employee benefits have been reported back by Asinta’s partner in Ukraine, MAI CEE:

Legal/Legislative Changes

Employers should be aware of the following changes in the Ukrainian taxation system in 2016:

• Personal Income Tax – earlier it was flexible from 15% up to 20%, now it is fixed 18% (this tax is applied to the salary and also is paid by the Employer in relation to some types of EB insurance lines – health, long-term life insurance (except additional pension insurance).
• Unified Social Tax – has decreased to 22% (last year there was a scale of rates up to 49%).
• Military tax – remains the same as the previous year, 1.5%.

The pension system in Ukraine is expected to see some changes as well in the near future. One expected change is the introduction of a second, accumulative level in the pension system starting from July 2017. The first level is currently a solidarity pension system. With the new change, insurance payment within the first year would be 2%, and will increase up to 5% until 2020.

Market Trends:

Employee health insurance continues to keep its position as one of the most important aspects of a benefits package for employees in Ukraine, due to the poor state social system for health insurance. This trend continues, despite the recent price increases. While a basic increase of premiums for medical insurance took place in 2015, inflation expectations will certainly have influence on the premiums in 2016 as well. The main reasons for this are: unstable ROE and a correspondent increase of prices for medicines and medical services. Despite the raise in prices, employers are trying to keep this coverage as the part of their employee benefits packages, either by increasing their budgets or by other modifications in the programs of coverage.

The main regulatory authority in the insurance market, the Commission of Regulation of Market and Financial Services, has adopted new requirements in February 2016 regarding the placement of financial reserves and their capitalization for insurers. These new requirements are stricter than before, and not all insurance providers will be able to submit to these stricter requirements, causing the number of insurance providers to lessen. So far the number of insurance providers in Ukraine has decreased by about 20 companies over last year, and we expect this trend to continue.