The Law on Self-Employment is designed to officially recognize the work of people working without an employer and employees. It establishes the procedure for taxation and simplifies the life of those who executed the IP.
Self Employment Act
From January 1, 2019, law No. 551845-7 is in force in several regions of Russia. Its main task is to restore order and facilitate the taxation process for those who work for themselves. Previously, such citizens had two options: to work “in the gray” or to do IP. When working through IP, it was required to give 13% of personal income tax (according to a simplified scheme – 6% of income).
Self-employed are taxed on professional income. It is fixed:
- 4% – when settling with individuals.
- 6% – when settling with legal entities or individual entrepreneurs.
Who helps the new regime
- For individual entrepreneurs. This allows you to work calmly without risk of getting a fine for illegal business. Reduces tax burden. Removes paperwork.
- Clients – legal entities. In order to pay the self-employed for work, it is not necessary to fulfill the duties of a tax agent (the person who is responsible for transferring taxes to the budget). The result – less taxes and work with documents.
How tax is charged
For reporting, it is necessary to indicate in the application “My tax” the amount received for the product or service. Write out a check. So, you will register the income. Then you will receive a notification from the Federal Tax Service with the total amount of tax for the last month. Count yourself do not need anything. Tax will do it for you. Taxes must be transferred before the 25th day of the next month. You can pay by credit card.
Where does the law work
There is no officially full-fledged federal law on self-employment. The government is conducting an experiment to find out how such taxation will work and what problems it will create..
Since 2019, only Moscow, the Moscow and Kaluga regions and the Republic of Tatarstan have participated in it. In 2020, the list of regions expanded. Now 19 more regions have been added to the experiment:
- St. Petersburg
- Voronezh region
- Volgograd region
- Leningrad region
- Nizhny Novgorod Region
- Novosibirsk region
- Omsk region
- Rostov region
- Samara Region
- Sakhalin Oblast
- Sverdlovsk region
- Tyumen region
- Chelyabinsk region
- Krasnoyarsk region
- Perm region
- Nenets Autonomous Okrug
- Khanty-Mansiysk Autonomous Okrug – Ugra
- Yamal-Nenets Autonomous Okrug
- Republic of Bashkortostan
From July 1, 2020, the Ministry of Finance plans to distribute such a tax throughout the country. About it said the press center of the department on his website. The results promise to be summed up in 2028 – until this time, tax conditions should not change.
Employment can be issued by any citizen of Russia, regardless of registration. But you can work on these tax conditions only on the territory of 23 constituent entities of the Russian Federation that participate in the experiment. It’s not yet clear what to do with Internet freelancers or those who don’t have a clear link to their place of business..
Types of Self-Employment
There is no exact list of professions. But there are specific activities with which it is forbidden to switch to self-employment:
- Sale of gasoline, alcohol, tobacco, other excisable goods and goods with mandatory labeling.
- Resale of property rights, car and goods.
- Extraction and sale of minerals.
- Entrepreneurship in the interests of another person on behalf of, as an agent or for a commission.
- Entrepreneurship with other employees.
In all other cases, if you work “for yourself” and receive an income of no more than 2.4 million per year, you can become self-employed. First of all, this is done for popular “independent” specialties:
- Taxi drivers.
- Freelancers (designers, copywriters, internet marketers).
- Frequent craftsmen (plumbers, electricians, builders).
- Handymen (movers, couriers).
- Craftsmen (manufacturers and sellers of handmade goods).
- Photographers and videographers.
- Landlords (who rents an apartment).
Self-employment does not affect employment. You can work in the office and work as a freelancer. It is impossible to combine individual entrepreneurship and self-employment – the entrepreneur must choose one taxation regime.
What is more profitable: individual entrepreneurship or self-employment?
In an individual entrepreneur with a general tax regime, the personal income tax rate of 13% is applicable. Compared to this figure, self-employment is more profitable. But IP can be opened with a simplified tax system (USN). Then you have to pay 6% of income. The same rate is set for the self-employed who receives money from a legal entity..
IP pays contributions to funds. This is 8,426 (for compulsory health insurance) + 32,448 (for compulsory pension insurance) and 1% for incomes exceeding 300,000. Even without a year’s income, an entrepreneur must transfer a total of 40,874 rubles of contributions.
If the amount of taxes is less than contributions, only contributions must be paid. If more, then contributions + difference. For example, if you owe 22,000 in taxes, then you give back only 40,874 installments. If taxes are owed to 50 thousand, then 40,874 will be counted as contributions, and 9,126 will be like tax.
Compare in figures, taking the amount of income of 2 million rubles:
- Self-employed will pay 120,000 rubles (6%) of taxes when working with legal entities.
- An individual with STS will pay 120,000 rubles (6%) plus contributions of 8,426 (mandatory medical insurance), 32,448 (TSO) + 17,000 (1% of income above 300,000 thousand). Part of taxes is covered by the amount of contributions. In fact, it turns out that for a year IP will pay the state 137,000 rubles.
IP wins by giving social and medical guarantees, supporting a pension. But not all self-employed earn 2 million per year..
If you make the same calculation for an annual income of 500,000, you get:
- Self-employed: 30,000 rubles.
- PI: 42,874 rubles (6% is 30,000 taxes, which are less than contributions. Therefore, PI will pay 40,874 contributions + 1% on income above 300,000 thousand).
If part of the payments to the self-employed comes from individuals, its figure will be even less.
- Self-employed status is more profitable in both cases.
- IP is good in that the contributions provide pension and health insurance.
The benefits of self-employment
- Simple taxation. Registration and delivery of reports – from a smartphone or tablet without collecting documents and standing in lines. If there is no earnings, you pay nothing.
- No need for a checking account. Accept money by credit card, cash or electronic payment systems.
- You can issue checks in the application.
- Self-employment can be recorded separately from the main job..
- Self-employed status is a confirmation of real income. It’s easier to get a loan or get a mortgage..
- The law guarantees that self-employment conditions will not change until 2028.
Cons of self-employment
- Not suitable for high income freelancers. If the annual income exceeds 2.4 million, it is imperative to switch to IP.
- Not available for some activities..
- Need to give taxes. Yes, this reduces net profit, but translates customer relations into a “white” legal zone.
How to apply for self-employment
Remotely via the My Tax mobile application:
1. Download the application on the Russian Federal Tax Service website.
2. Register. If you have a personal taxpayer account, enter the password from it and the TIN. If there is no office, scan the passport from the application – the necessary fields will be filled automatically – and take a picture.
3. Wait for verification registration data.
If you need to switch from individual entrepreneurship to self-employment, then after registration in the application, you must send a tax application for transfer to another taxation system within 30 days.
If you are switching from self-employment to an individual entrepreneur with a simplified tax system, then applications must be submitted within 20 days. It is important. Otherwise, stay on the general VAT system.
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