Accounting services for Sole Proprietors in IT
Taxation of sole proprietors in IT
IT sector is one of the fastest growing industries in the Republic of Belarus. New companies and sole proprietorships are emerging in this sphere. One of the most important issues in the registration of a sole proprietorship, particularly in the IT sector, is the choice of taxation system. Incorrect taxation can lead to unfortunate results, both for the sole proprietor personally (e.g. imposition of administrative sanctions) and for its business.
There are three taxation system options for sole proprietors:
- simplified (STS: without VAT or VAT);
- single tax for sole proprietors.
So, to choose the right taxation system for a sole proprietorship, the first thing to do is to decide:
- on the type of activity of the sole proprietor (programming; consulting or other activities in the field of information services; activities related to games, etc.);
- on the customer of services (services will be provided only to physical persons, only to legal entities and sole proprietors, or services will be provided to both; residents or non-residents of the Republic of Belarus);
- on the volume of anticipated revenue.
Depending on the type of activity, as well as the chosen tax treatment, the sole proprietor pays other obligatory payments to the budget.
The most popular tax treatments for sole proprietors in IT sector: STS (with and without VAT)
A simplified taxation system (STS) is the most appropriate and popular tax system for sole proprietors.
Such taxation is popular among sole proprietors who are engaged in software development or work in a related field.
The main advantages of using the STS are:
- simplified procedure for calculating and paying taxes,
- it is possible for sole proprietors to keep records and calculate tax payments independently, without the involvement of accountants;
- simplification of document flow.
The object of taxation under the simplified tax system is gross revenue.
The procedure and conditions for applying STS are defined by the Tax Code.
The STS can be used in all cases, except those where its application is prohibited. The list of such restrictions is set out in paragraph 2 of Article 324 of the Tax Code.
If the customers of works and services are mainly foreigners, a more favorable taxation system for sole proprietors is the STS with VAT.
For sole proprietors whose main customers are Belarusian entities, a more favorable taxation system is the STS without VAT.
The tax rates for the STS are:
• 3 % – for sole proprietors who pay VAT;
• 5 % – for sole proprietors who do not pay VAT;
The STS can be applied from the moment of establishment of the sole proprietorship or switch to it from the next year.
For the transition to the simplified tax system from January 1, 2021, the amount of gross revenue for 9 months, the cumulative total from the beginning of 2020, is set for sole proprietors in the amount of 330,750 Belarusian rubles.
During the period of application of the STS, the organization can switch from the STS with VAT payment to the STS without VAT payment, or, conversely, in accordance with established rules of such transition.
The transition to the STS with VAT payment can be either voluntary or obligatory.
Hiring of employees by sole proprietors in IT
When hiring an employee, a sole proprietor should pay attention to the statutory requirements on providing the necessary information and documents.
First, a sole proprietor can not employ more than three physical persons.
When applying for a job, a sole proprietor must request from an employee:
- document of identification;
- military service registration documents (for persons liable for military service and persons subject to the draft);
- employment book, with the exceptions established by law;
- certificate of education;
- insurance certificate. For a person entering employment for the first time, the sole proprietor submits a special form for the NSSF Authorities to create an insurance certificate.
It is possible that additional documents may be required due to the kind of activity. It depends on the field and the specifics of the job for which a sole proprietor is hiring an IT specialist.
Often, such an important document as a Diploma may not be required when hiring in IT for a sole proprietor. In this field, if a person shows excellent knowledge at an interview, which is reinforced by a portfolio, it may not be necessary to talk about a Diploma.
A sole proprietor does not have the right to demand documents that are not provided for by the legislation (Part 3 of Article 26 of the Labor Code) when concluding an employment contract.
In turn, a sole proprietor who hires an employee must also have a number of documents prepared:
- staffing table
- internal rules
- personnel directive
- labor and civil law contracts
- employment books and a book of their record
- timesheet and payments sheet
When hiring an employee, a sole proprietor can set up an employment contract, which must contain the information and conditions specified in Article 19 of the Labour Code; a contract, which is a type of fixed-term employment contract but has its own characteristics.
A fixed-term employment contract is the best choice for sole proprietors in the IT field, and can be concluded by them without any restrictions.
A sole proprietor may also set up civil law contracts with employees, such as a contract of work and labour and a contract for the paid rendering of services.
NSSF for sole proprietors
Among the regular obligatory procedures for sole proprietors, in addition to paying taxes, there are also contributions to the National Social Security Fund.
The amount of insurance contributions is calculated by the sole proprietor independently.
The Law "On Obligatory Insurance Contributions to the Budget of the State Extra-budgetary Fund of Social Protection of the Population of the Republic of Belarus" provides for the amount of obligatory insurance contributions for retirement, disability and loss of breadwinner insurance (pension insurance):
for individuals who pay obligatory insurance contributions on their own, for Belgosstrakh – 29 %;
for employed citizens – 1 %.
The amount of obligatory insurance contributions for insurance in case of temporary incapacity for work, pregnancy and birth, childbirth, taking care of a child under three years of age, granting one day off work per month to a mother (stepmother) or a father (stepfather), foster parent (guardian) bringing up (raising) a disabled child under the age of 18, death of the insured or a member of his/her family (social insurance) for employers, individuals paying obligatory insurance contributions on their own, Belgosstrakh (for persons who receive additional payment to the average monthly earnings or are paid insurance benefit for temporary incapacity for work) is 6 %.
According to the Decree of 27.12.2018 "On State Social Insurance", sole proprietors can pay contributions to the NSSF only for the period of the actual implementation of their activities with income.
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