In the new economic context in which commercial independence has several advantages to the detriment of traditional employment based on an individual employment agreement, entrepreneurs are tempted to conclude various types of contracts with individuals.
However, there is a series of legal issues that should be considered when a company intends to work with individuals.
Here are 3 common mistakes when a legal entity concludes services agreements, collaboration contracts or copyright agreements with individuals:
Activity having a continuous nature carried out without a legal form
Any person who carries out commercial activity having a continuous nature is considered a professional according to the Civil Code. Professionals are all those who operate a business. The operation of an enterprise is the systematic exercise of an organized activity that consists in production, management or transfer of assets or in provision of services, regardless of whether or not it has a profit-oriented purpose (this discussion refers to profit-oriented activities that seek profit).
Thus, if a natural person carries out a commercial activity on a regular basis, the former must have a legal form (for example, authorized natural person - PFA/ limited liability company - SRL), otherwise, it may be considered as tax evasion.
Agreement between a company and an individual without withholding tax
When collaborating with natural persons (in other situations than on the basis of an individual employment agreement), as a rule, there is the obligation of the legal entity to withhold the withholding tax, as income payer, in two situations:
when concluding copyright agreements
Rule: The tax is calculated by applying the 10% rate on the net income and it is withheld at source. The calculated and withheld tax represents the final tax and is paid to the state budget until the 25th of the month following the month in which it was withheld.
Exception: If the natural person carries out activity under an entity that organizes and manages its own accounting (PFA/ SRL), the tax is no longer withheld at source, but is paid by the respective entity.
when concluding services agreements
The hypothesis we are discussing at this point is the one in which the natural person does not carry out a continuous activity, but occasionally concludes a services agreement with a legal entity. In this case, the earned income represents, according to the Tax Code, income from other sources obtained by the natural person.
In conclusion, if the company concludes an agreement with a natural person who does not have a legal form (PFA/ SRL), only occasionally, the company has the obligation to calculate and withhold income tax at the time of paying the income, by applying the 10% quota on gross income. The tax thus withheld is paid to the state budget until the 25th of the month following the month in which it was withheld.
Attention: services that the company benefits from must not have a continuous nature, as there is a very high risk of requalification/ reframing the relationship as an employment relationship.
The collaboration relationship implies, in fact, a dependent activity
If the company collaborates with a PFA/ SRL, the contractual relationship must be one between independent parties, in positions of legal equality (in contrast to the employment relationship, which involves a dependent activity). In other words, the independence criteria provided by the Tax Code must be met, namely:
the natural person has the freedom to choose the place and the way of carrying out the activity, as well as the work schedule;
the natural person has the freedom to carry out the activity for several clients;
the risks inherent to the activity are undertaken by the natural person carrying out the activity;
the activity is carried out by using the patrimony of the natural person who carries it out;
the activity is performed by the natural person by using his/her intellectual capacity and/or his/her physical performance, depending on the specificities of the activity;
the natural person is part of a professional body/ order with the role of representation, regulation and supervision of the profession, according to the particular enactments that regulate the organization and exercise of the respective profession;
the natural person has the freedom to carry out the activity directly, with employed staff or through collaboration with third parties in accordance with the law.
In conclusion, the agreement must comprise clear clauses, which should result in the freedom of the natural person to decide over his/her activity.