03.05.2023
INSURANCE AND TAXES UNDER CIVIL CONTRACTS
A civil contract is a contract by which a person, called the "executor", undertakes to provide a certain production result (physical work) at the order of another person/firm, called the "contractor".
The very name "civil contract" is rather colloquial and has become established in practice due to its easier recognition. In the labor law world, the contract governing this kind of relationship between the parties is called an "assignment contract".
The rights and obligations of employers, assignors and insured persons when exercising labor under an employment contract and a civil contract are different.
What are the differences in insurance and taxes between an employment contract and a civil contract?
Insurance
Insurance is one of the big differences between an employment contract and a civil contract. The civil contract is not considered a work experience, but only an insurance one. Contractors under a civil contract are insured for fewer risks than those working under an employment contract.
In the employment contract, each profession has a precisely defined minimum insurance threshold. This is the minimum on which the person is generally insured for all insurance risks.
In the civil contract, if the remuneration after deducting the legally recognized expenses is less than the minimum wage for the country and the person is not insured on another basis, no insurance is due. The person pays only health contributions at his own expense, as is the case with unemployed persons. Insurance is also not required if the executor is a sole trader or a self-insured person.
The civil contract does not include insurance for occupational accidents, occupational disease, general illness and maternity, unemployment, and accordingly, executors under civil contracts are not entitled to compensation from the state on these grounds.
If the person is insured on another basis or receives remuneration in an amount greater than the minimum wage after deduction of statutory expenses, then compulsory insurance for disability, due to general illness, for old age and death, as well as health insurance installments.
The mandatory insurance contributions for persons working under a civil contract and insured during the month on another basis in an amount equal to or exceeding the minimum wage for the country, are:
- Pension fund of the State Social Insurance - for disability, general illness, old age and death (for persons born before January 1, 1960) - in the amount of 11.02% for the insurer and 8.78% for the insured;
- Pension fund of the State Social Insurance - for disability, general illness, old age and death (for persons born after December 31, 1959) - in the amount of 8.22% for the insurer and 6.58% for the insured;
- Additional mandatory pension insurance in the Universal Pension Fund (for persons born after December 31, 1959) - in the amount of 2.8% for the insurer and 2.2% for the insured;
- Health insurance - in the amount of 4.8% for the insurer and 3.2% for the insured.
Taxes
Executors under a civil contract are obliged to declare to the contracting authority whether they are insured and for what amount on other grounds, so that the following things are taken into account when calculating the fee:
- Individuals who are registered as self-insured receive the gross amount specified in the contract, without deductions for insurance and tax. They themselves have the obligation to pay and declare their monthly insurance and taxes;
- Persons who, even on several grounds, are insured for less than minimum wage in the month of payment of the fee, do not pay insurance contributions;
- Persons who are insured on several grounds are obliged to pay insurance up to the maximum insurance income for the country, which as of April 2022 is BGN 3,400, i. e. if the person is already insured on another basis above the threshold of BGN 3,400, no insurance contributions should be withheld from the additional remuneration under the civil contract;
- Pensioners working under a civil contract are required to have health insurance if their insurance income is equal to or exceeds the minimum wage, but insurance contributions to the State Social Insurance Fund and Supplementary Mandatory Pension Insurance are optional. In the case of civil contracts, there is a statutory recognized expenses (amount that is not subject to insurance and tax), which are in the amount of 25% for income from exercising a free profession or remuneration from non-employment legal relations according to Art. 29, paragraph 1, item 3 of the Law on Personal Income Taxes. After deducting the legally recognized expenses, the amount received is called insurance income, which is taxed with the mandatory insurances at the executor's expense. After deducting the insurance contributions, the amount received is subject to 10% income tax, according to the provisions of the Law on Personal Income Taxes.
The insurance contributions are declared by the contractor every month with a declaration form 1 and 6 by the 25th of the month following the month of remuneration payment. The tax is declared quarterly with a declaration under Art. 55 of the Law on Personal Income Taxes by the end of the month following the corresponding quarter of the year.
Executors under a civil contract are obliged to submit an annual tax return by April 30 of the following year. In the annual tax return, the income from all legal relationships of the person during the calendar year is included. For this purpose, each employer or contractor issues a service memo under Art. 45 of the Law on Personal Income Taxes for the respective amounts paid to the person during the calendar year.
