Practice shows that behind formal cooperation with sole proprietors and self-employed taxpayers, de facto employment relationships are increasingly being concealed. Such substitution has become the focus of supervisory authorities under Article 33 of the Tax Code of the Republic of Belarus, leading to additional assessments of taxes and social security contributions.
Following the abolition of the simplified taxation system (STS) for sole proprietors, such schemes have become much less common, though not entirely eliminated. Moreover, inspection reports with additional tax assessments are still being issued for previous tax periods.
A noticeable trend has recently emerged in the engagement of self-employed taxpayers, who are increasingly used as a means of reducing the overall tax burden. This tendency is confirmed by the practice of the Ministry for Taxes and Duties (MNS): examples of relevant cases are regularly published on the official website of the authority. Likewise, judicial practice on the reclassification of civil law contracts as employment contracts is available on the website of the Supreme Court, including recent judgments confirming the position of the supervisory authorities.
Key Indicators of Substitution
When establishing the substitution of employment relations through sole proprietors or self-employed taxpayers, particular attention is paid to the following key indicators that demonstrate a lack of independence:
Single client. Income is primarily generated from one client, who acts as the sole or main source of revenue.
Lack of entrepreneurial activity. No actions are taken that would indicate the conduct of independent business activity (e.g., no advertising or efforts to expand the client base).
Client’s initiative. Registration as a sole proprietor or self-employed taxpayer occurs not at the individual’s own initiative, but at the request or in the interest of the client as a precondition for engagement.
Stability of remuneration. The remuneration remains stable from month to month and does not vary (similar to a salary).
Absence of business assets. The person has substantial income but no assets related to business activity (such as vehicles, real estate, or equipment).
Urgency of registration. The individual was registered as a sole proprietor or self-employed taxpayer shortly before commencing cooperation with the client.
Urgency of cessation. Business activity (deregistration as a sole proprietor or cessation of self-employment) ends immediately after the termination of contractual relations with the client.
Indirect Indicators
The identification of the above key indicators attracts the attention of supervisory authorities and serves as grounds for verifying additional, indirect indicators that may confirm the existence of employment relations.
Nature of Work and Contractual Obligations
Core employee functions. Performance of functions typical of in-house positions within the company (for instance, when the company already employs an IT specialist performing the same duties).
Systematic performance. Duties are carried out on a regular and recurring basis, unrelated to one-off or project-based tasks.
Involvement. The contractor’s duties require continuous presence and involvement in the company’s business processes.
Documentation of work. Acts of completed work are drafted in general terms and lack specific descriptions of deliverables.
Resources. The contractor has no independent resources for the performance of work, and the acts do not indicate the engagement of subcontractors.
Indicators of Organisational Subordination
Internal regulations. The contractor is subject to the company’s internal working rules and the instructions of its management.
Client’s premises and equipment. Work is performed on the client’s premises using equipment, tools, materials, or machinery provided by the client.
Standardised documentation. The contractor signs contracts and acts prepared by the client based on standard templates, without the ability to make changes.
Client involvement in contractor’s activity. The client registers the sole proprietor, maintains accounting of income and expenses on their behalf, or the IP addresses used for filing tax returns coincide for the contractor and the client.
Financial and Economic Indicators
Unjustified payments. The remuneration under a civil law contract exceeds the company’s internal or market rate for comparable services, without a clear business rationale.
Payment schedule. Payments are made according to the same or a similar schedule as salary payments to in-house employees (e.g., twice a month).
Absence of business expenses. The sole proprietor or self-employed taxpayer incurs no typical business expenses, such as rent, advertising, or equipment purchases.
Personal spending. Income is used exclusively for personal purposes unrelated to business activity.
Common banking arrangements. The contractor’s account is opened in the same bank servicing the client.
Risks for Businesses
If supervisory authorities establish that employment relations have been substituted through sole proprietors or self-employed taxpayers, the organisation faces significant financial consequences, including:
Additional assessment of personal income tax at a rate of 26%;
Additional assessment of contributions to the Social Security Fund (SSF) at a rate of 35%;
Penalties and administrative fines, which may amount to up to 40% of the total reassessed taxes and contributions.
In addition, if substitution of employment relations is identified, criminal liability may arise under the following articles of the Criminal Code of the Republic of Belarus:
Article 243-1 – Evasion of the obligations of a tax agent to withhold and remit taxes and fees.
Article 243-3 – Evasion of the payment of social security contributions.
Conclusion
It should be noted that the presence of individual indicators does not automatically entail the reclassification of a civil law contract as an employment contract. However, a combination of such factors may serve as grounds for inspection and legal evaluation of the parties’ relations based on their actual economic substance rather than their formal structure.
Does your business cooperate with sole proprietors or self-employed taxpayers?
Ensure that your contracts and the actual nature of services do not involve risks of reclassification that could lead to additional tax assessments.
The REVERA team will conduct a tax due diligence of your contractor relationships and propose practical solutions to minimise tax risks.
