Self-Employed or Individual Entrepreneur in IT

In today’s dynamic world of IT, freelancing has become an integral part of the professional life of many specialists. The opportunity to work on interesting projects, flexibly allocate your time and independently choose clients attracts more and more people to this field. However, before taking the step into freelancing, it is important to carefully consider which of the options for formalizing your activity – self-employment or individual entrepreneur – is better suited to your goals and needs. Each option has its advantages and disadvantages, as well as different taxation and reporting requirements. In this article, we will consider the key aspects of choosing between self-employment and individual entrepreneurship in the context of IT services to help you make an informed decision and optimally organize your professional activity. Find out what factors should be considered when choosing and how to formalize your activity to maximize the potential in freelancing properly. We will also consider how a company can determine which IT specialist is preferable to cooperate with – a self-employed or individual entrepreneur.

What is Self-Employment in the IT Sector

The term “self-employed” does not appear in official documents. The category of self-employed includes:

• Specialists who are not registered as individual entrepreneurs but independently pay taxes on types of activities permitted by the state when registration is not required. Such specialists should not work for hire in the company they provide services and cannot have hired workers.
• Specialists who work with companies under civil law contracts without being registered as full-time employees. In this case, “salary” taxes (taxes on the freelancer’s income) are paid by the company that hires such a specialist.

The company enters into civil law contracts with the self-employed in all cases.

What Kind of Work Can Self-Employed People Do in the IT Sphere

In the IT sector, self-employed people who independently pay professional income tax can provide services and perform work on orders from individuals, including individual entrepreneurs, as well as companies:

• Using the Internet to fulfil orders and transfer the results to the customer. An important condition: such work (services) must be provided outside the customer’s location, the facilities he controls. This type of activity is formulated so that many services and work in the IT sector are suitable for it.
• Graphic design.
• Development of websites, software, and testing.
• Configuring computers and software, as well as repairing and maintaining software.

IT specialists (not payers of professional income tax) who are hired under a contract can perform work (provide services) in the IT sector according to the customer’s technical specifications. Labour relations must not be substituted for civil law since regulatory authorities consider this a violation of state requirements.

What Do Self-Employed People Need to Provide Services and Work in the IT Sphere

For self-employed people working in the IT sector, several important points should be taken into account to perform work and provide services:

1. Registration as Self-Employed

Registering as self-employed is necessary if the specialist has decided to pay taxes independently. You can register through the mobile application “Professional Income”, downloaded from the Ministry of Taxes and Duties website. A passport is required for registration.

2. Selecting Types of Activity

Self-employed people can choose one or more activity types that are permitted for self-employed people.

3. Keeping Records of Income

Self-employed payers of professional income tax must keep records of their income. It is done through the “Profdohod” application, where they create checks and invoices, and you can see the income for each tax period.

4. Payment of Taxes

Self-employed persons pay a professional income tax at a rate of 10% on income from individuals and companies, including foreign ones. A 20% tax must be paid when the total income for the year from Belarusian companies and individual entrepreneurs exceeds 60,000 Belarusian rubles. The tax is paid monthly. The tax rate includes mandatory social contributions to the Social Security Fund.

5. Concluding Contracts

It is recommended that civil contracts with clients be concluded clearly, stating the terms of work, deadlines, and cost of services. It will protect both parties and help avoid misunderstandings.

6. Studying the Legislation

It is important to be aware of current changes in legislation concerning the self-employed, taxes and the IT sphere. It will help avoid mistakes and fines.

7. Marketing and Promotion

You should promote your services to attract clients. It may include creating a portfolio, participating in online platforms for freelancers, and using social networks and professional communities.

8. Training and Development

The IT sphere is changing rapidly, so it is necessary to update your knowledge and skills regularly. This can be done through courses, webinars, and self-education.

9. Portfolio and Recommendations

Self-employed individuals who are not independent payers of professional income tax are advised to have a portfolio that will help promote their services (works) and recommendations from customers.

Considering these points, self-employed individuals will be able to effectively perform their work and provide services in the IT sphere.

Who is an Individual Entrepreneur in the IT Sphere

An individual entrepreneur is an individual who is registered with the local registration authority (district administration) as an individual entrepreneur. Registration is confirmed by an entry in the Unified State Register of Legal Entities and Individual Entrepreneurs and a Certificate of State Registration issued to an individual entrepreneur immediately upon registration. An individual entrepreneur carries out activities that are permitted for entrepreneurs.

An individual entrepreneur has the right to hire employees and engage contractors under civil law contracts. In total, there should be no more than three people.

What Types of Activities Can an Individual Entrepreneur Perform in the IT Sphere

An individual entrepreneur must perform only those activities that are included in the special list of activities permitted for entrepreneurs. In the IT sphere, such activities inclue:

• Computer programming, consulting and related services.
• Other data processing, provision of services for posting information on the Internet (provision of space and time for advertising, except for advertising in online media) and related activities.

What Taxes does an Individual Entrepreneur Pay

Individual entrepreneurs pay income tax every quarter at a rate of 20%. When an individual entrepreneur’s income exceeds 500,000 Belarusian rubles in the current year, the tax for the year is recalculated at a rate of 30%.

Individual entrepreneurs separately pay mandatory social security contributions. Generally, this is 35% of income monthly or immediately for the year no later than March 1 of the following year (based on the number of minimum wages in the country) or only for the periods when the activity was carried out. Social contributions may not be paid by individual entrepreneurs who are:

• Pensioners and receive pensions.
• On maternity leave for a child under 3 years of age.
• Studying full-time.

When an individual entrepreneur hires workers or attracts contractors under a civil law contract, insurance contributions must be paid to Belgosstrakh at a rate of 0.6%.

Individual entrepreneurs must submit tax returns and special reports to the Social Security Fund for themselves and hired employees. Reports for hired employees are also submitted to Belgosstrakh.

As you can see, the tax and bureaucratic burden on individual entrepreneurs is much greater than on self-employed freelancers.

Who is More Profitable for Companies to Work with: the Self-Employed or Individual Entrepreneurs

Comparison of the advantages for a company when working with self-employed and individual entrepreneurs (IE) depends on various factors, such as the company’s needs, the nature of the work performed, tax regimes and legal aspects. Here are some key points that will help evaluate which specialists can be more profitable for companies to work with:

1. Financial aspects

Taxes: The self-employed pay a tax on professional income (10% rate), which can be simpler and cheaper for companies that plan to work with individuals. Individual entrepreneurs apply higher tax rates (20% tax + Social Security Fund), so their rates can be higher than those of the self-employed.

Deductible expenses: Individual entrepreneurs can consider expenses related to running a business when calculating taxes, which allows them to reduce the taxable base and apply tax deductions. The self-employed do not have the opportunity to take expenses into account.

2. Legal Aspects

Documentation: Working with the self-employed can be simpler regarding paperwork: it is enough to conclude a civil law contract, and the specialist pays the taxes himself. The tax is calculated using the “Profdokhod” application. Individual entrepreneurs generally have more complex accounting and require a large amount of documentation: invoices, certificates of completion of work, price agreement protocols, and other documents.

No substitution of labour relations: Companies are not recommended to involve self-employed individuals and individual entrepreneurs as contractors who work or work in this company, and after their dismissal, not enough time has passed—3 years for self-employed individuals.

3. Professionalism

Qualification: Companies can choose a self-employed person or individual entrepreneur depending on the required skills and experience. Sometimes, self-employed specialists can be highly qualified and offer competitive services at a lower price.

Specialization: Experienced sole individual entrepreneurs often have a wider range of services, material and technical bases, and financial responsibility, which can be critical for large projects or long-term contracts.

4. Flexibility and Speed of Task Execution

Working with the self-employed: Self-employed people can be more flexible and adapt to project changes faster, making them a good choice for short-term tasks or freelance projects.

Working with individual entrepreneurs : Since they are registered as businesses, individual entrepreneurs can provide services under long-term contracts and approach tasks more responsibly.

Cooperating with the self-employed or individual entrepreneurs is a matter of company strategy. Self-employment can be useful if more flexibility and short-term projects are required. If the company seeks more stable cooperation with guarantees of completing large projects, individual entrepreneurs may be more suitable.

Companies can also cooperate with IT specialists who are neither individual entrepreneurs nor single taxpayers. In this case, the specialist is hired under a civil law contract, but the company pays all the specialist’s income taxes. It can be advantageous when the company has an IT employee who draws up the technical specifications for the freelancer, and there are no large volumes of work in the IT sphere. In any case, companies should carefully evaluate specific specialists based on their professional qualities, experience and the conditions they offer.