The consequences of employees being dismissed and registered as self-employed persons
Legal Digest \ 27.02.2019An experimental tax regime, a tax on professional income, has been introduced for self-employed individuals and individual entrepreneurs since 1 January 2019. Will companies be able to make savings further to the introduction of the new special tax regime?
The experimental regime will be operated over the period from 2019 until 2028 in the following regions:
- Moscow Region;
- Kaluga Region;
- the Republic of Tatarstan.
The following preferential tax rates have been established for self-employed persons:
- 4% – on income from individuals;
- 6% – on income from legal entities.
In addition, self-employed persons do not have to pay social contributions or personal income tax.
Companies can do business with self-employed persons under civil-law contracts. Tax savings from dealings with such individuals can be quite tangible: companies do not have to withhold personal income tax or charge social contributions on the fees of such individuals.
Owing to this, some employers have started to dismiss their employees and engage them as self-employed persons. The employers substantiate the presence of such employees at work places through a lease agreement for a working area. Such companies, however, do not take into account a statutory restriction: no dismissed employee‘s income from his/her former employer will be covered by the special tax regime for two years after dismissal. Nor is it in the interests of an employee to resign, since he/she will be deprived of vacations, sick leave allowances and other guarantees established by employment legislation.
Please contact Acsour’s specialists with any questions on how tax legislation should be applied.