Tax and Legal Implications of Engaging Freelancers for Businesses in Tajikistan

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

There is no specific legal definition of a “freelancer” under the legislation of the Republic of Tajikistan.

In practice, an individual performing work outside the regular staff of an organisation and not employed under an employment contract is generally classified either as a contractor engaged under a civil law agreement (e.g., a service agreement or a contract for work and labour).

Tax risks – Increased personal income tax rate by 3%.

For regular employees, personal income tax is withheld at the rate of 12%.
For external workers / contractors, personal income tax is withheld at the rate of 15%.

The social tax and pension contributions are withheld and paid in the same manner for both categories.

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

A contract with a freelancer may be reclassified as an employment relationship only by the Labour Inspection Authority (the Ministry of Labour).

If the labour authority determines that the actual relationship contains the characteristics of employment (such as subordination to internal work rules, performance of duties that correspond to a job position, regularity of work, or use of the employer’s workplace/equipment), the civil law services agreement with the freelancer may be deemed an employment contract.

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

Yes, when hiring/engaging freelancers, a company incurs obligations to withhold taxes and file tax reports in the same manner as it does for regular employees.

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

Yes, in accordance with Part 1 of Article 236 of the Tax Code of the Republic of Tajikistan, resident legal entities, as well as their separate subdivisions, individual entrepreneurs, and permanent establishments of non-residents that make payments for services (works) rendered in the Republic of Tajikistan to individuals who are not registered as individual entrepreneurs, whether based on civil law contracts or without such contracts, are required to withhold tax at the source of payment.

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

A foreign freelancer may rely on the provisions of a double tax treaty if such a treaty exists between the Republic of Tajikistan and the country of his/her tax residency. However, non-residents receiving income from sources located in the Republic of Tajikistan are required, pursuant to Article 177 of the Tax Code of Tajikistan, to submit an application to the tax authorities together with the original certificate of tax residency issued for the relevant calendar year, accompanied by a notarised or apostilled translation.

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

Cooperation with a freelancer that complies with legal requirements involves the preparation of the following documents:

• Properly executed civil-law agreements governing the scope and terms of the services;
• Invoices or other documents evidencing the short-term and non-permanent nature of the engagement;
• A completion certificate or work performance report confirming that the agreed services have been provided.

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

1. Proper contractual structuring.
Freelancers are engaged to perform specific tasks or projects requiring specialized expertise and are not included in the company’s regular staff. Accordingly, the relationship with them must be governed by civil-law contracts (for example, contracts for work/services or remuneration-based service agreements). It is essential to avoid elements characteristic of employment relationships — such as subordination to internal company rules, a fixed work schedule, regular salary-type payments, and integration into the company’s internal business processes. The presence of such features may result in the reclassification of the relationship as an employment relationship.

2. Tax obligations of the engaging company.
If the freelancer is an individual, the company making the payment may be treated as a tax agent. This entails the obligation to withhold taxes and fulfill reporting requirements to the tax authorities in the cases prescribed by law.

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

The tax risks for a company engaging freelancers can be significantly reduced, provided that the cooperation is documented and formalised correctly. 

To achieve this, it is recommended to:

• Maintaining proper documentation as outlined in the response to Question No. 6;
• Entering into civil-law (contractual) agreements with freelancers, which must clearly specify the scope of work, timelines, deliverables, and remuneration terms.

Author: Kamoliddin Mukhamedov