Legal advice

The company has entered into work and labour contract with a self-employed person and pays him remuneration. Can the State Revenue Service recognize such legal relations as labor relations and fine them?

19.07.2022 Aleksandrs Koposovs, the member of the board

There are 6 signs by which the SRS can determine when the payroll tax should be paid, or in other words, when an employment relationship should be established. These signs are established by paragraph 2 (2) of Article 8 of the Law of the Republic of Latvia “On Personal Income Tax”.

In accordance with the above paragraph, it is considered that an individual (payer) receives income from which payroll tax must be paid if at least one of the following signs is stated:
1) economic dependence of the payer on the person to whom the services are provided;
2) not taking on financial risk in case of performing unprofitable work or loss of debts receivable;
3) integration of the payer into the enterprise to which he provides his services (integration into the enterprise within the meaning of this Article is the presence of a place of work or rest, the obligation to comply with the internal regulations of the enterprise and other similar signs);
4) the availability of actual days off and holidays and the procedure for their provision in compliance with the internal regulations of the enterprise or the work schedule of other individuals working at the enterprise;
5) the activity of the payer is carried out under the direction or control of other persons, the payer does not have the opportunity to involve his staff in the performance of work or use subordinate entrepreneurs;
6) the payer is not the owner of fixed assets, materials and other assets used in economic activities (this criterion does not apply to personal vehicles or individual personal tools used to perform work tasks).

Thus, if during the initial inspection of documents and actual circumstances at the enterprise one of the signs of the need to pay payroll tax is revealed, the SRS can recognize the relationship as labor, calculate the amount of unpaid taxes and charge an administrative fine.

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