Tax and Legal Implications of Engaging Freelancers for Businesses in Belarus

1) What are the tax risks for businesses when hiring freelancers instead of full-time employees?

When engaging freelancers, businesses face the risk of additional assessment of social security contributions payable to the Social Protection Fund at a rate of 35%, personal income tax at a rate of 26%, as well as administrative penalties of up to 40% of the amount of unpaid tax.

If the amount of underpaid taxes reaches approximately EUR 47 000 / USD 55 000, criminal liability may arise under Articles 243-1 and 243-3 of the Criminal Code of the Republic of Belarus.

2) How do tax authorities determine whether a freelancer arrangement should be reclassified as employment?

The tax authorities examine not only the terms of the contract with the freelancer but also the actual relationship between the freelancer and the organization.

Factors subject to analysis may include, inter alia: the job responsibilities of the organization’s employees; the prior relationship between the organization and the freelancer; the freelancer’s relationships with other organizations; the manner in which the contract is performed; the form and procedure of remuneration; whether the freelancer has a primary place of employment; and whether the self-employed individual complies with the organization’s internal labor regulations.

3) What are the employer’s withholding or reporting obligations when working with freelancers?

The organization’s obligation to withhold the freelancer’s income tax depends on the type of tax the freelancer pays and the manner in which it is paid. For example, if a freelancer is a payer of professional income tax, the tax is paid independently by the freelancer. If the freelancer is a personal income tax payer, the tax must be withheld and remitted by the organization.

4) Are withholding taxes applicable when engaging cross-border freelancers?

Yes, individuals who are non-residents of Belarus are liable for income tax on income received from sources within Belarus.

Such income may include remuneration for the performance of labor or other duties, completed work, rendered services, or actions (or omissions) received from Belarusian organizations, Belarusian individual entrepreneurs, foreign organizations operating in Belarus through a permanent establishment, or representative offices of foreign organizations, regardless of where the relevant activities were actually performed or where the payments were made from.

5) How do double taxation treaties impact taxation of payments to foreign freelancers?

As a rule, double taxation treaties contain special provisions regarding income from independent personal services, which may apply to freelancers. These articles typically provide a non-exhaustive list of what is considered such services, for example educational or athletic services, and the activities of lawyers and accountants.

When determining the country in which tax on independent personal services should be paid, the “fixed base” criterion (such as a workshop, office, etc.) may be used.

6) What compliance documentation should businesses maintain when working with freelancers?

In Belarus, freelancers are not subject to value added tax (VAT).

7) What compliance requirements must companies meet when engaging freelancers?

In Belarus, contractual requirements for agreements with individuals are established by Edict of the President of the Republic of Belarus No. 314 dated July 06, 2005 “On Certain Measures to Protect the Rights of Citizens Performing Work under Civil Law and Employment Contracts.”

Examples of mandatory contractual terms include:

• the settlement procedure between the parties under a civil law contract, including the amounts payable;
• the parties’ obligations to ensure safe working conditions in accordance with their respective responsibilities under the civil law contract;
• grounds for early termination of the civil law contract;
• liability for the customer’s failure to fulfill payment obligations for completed work, rendered services, or a created intellectual property object, in the form of a penalty of not less than 0.15% of the unpaid amount for each day of delay.

8) What are the legal and contractual best practices for structuring freelancer engagements to minimize tax risks?

Examples of mechanisms to minimize tax risks include: 

• structuring the contract in compliance with the requirements of Presidential Decree No. 314 dated July 06, 2005 and ensuring consistency between contractual terms and the freelancer’s actual activities;
• retaining evidence confirming the freelancer’s actual performance under the contract (e.g., reports);
• analyzing employee salaries and freelancer remuneration;
• reviewing employee job descriptions and the freelancer’s scope of work to avoid functional overlap;
• stating in the contract and ensuring in practice that the organization interacts with the freelancer as an independent contractor rather than as an employee (for example, no requirements regarding working hours, rest periods, vacations, etc.).

Author: Polina Sachava