A civil law contract (CLC) is one of the most widely used and, at the same time, one of the “riskiest” instruments for formalizing relations between a company and an individual. It constantly raises questions: how does it differ from an employment contract, which taxes should be withheld, how should the payment be reported, and can a CLC be concluded with a director, a non-resident, or the company’s own employee? Below is a practical overview without unnecessary theory: what is important to understand, whom it concerns, and what steps should be taken to avoid claims from regulatory authorities.
What a CLC is and how it differs from an employment contract
A CLC is an agreement under which an individual performs specific work or provides a service and delivers the result to the customer. Unlike an employment contract, it does not involve subordination to internal labor regulations, a work schedule, a position on the staffing table, leave, or other guarantees typical of employment relations. The customer pays not for the process but for the result—the completed work or service provided—which is usually documented by a completion certificate.
The key difference lies in the nature of the relationship. An employment contract assumes that a person personally and systematically performs a job function under the employer’s direction for regular remuneration. A CLC, by contrast, focuses on a one-off or project-based result, the contractor’s independence in organizing their work, and the absence of a permanent position within the company’s structure.
Most disputes arise precisely at this boundary: when permanent employment is effectively formalized as a CLC. Such arrangements are regarded as the substitution of employment relations, and this area has recently been under particular scrutiny from government authorities.
Who is affected and what has changed
This topic is relevant to a broad range of parties: LLPs and individual entrepreneurs that engage contractors and freelancers; accountants responsible for calculations and reporting; individual contractors themselves; and companies working with non-residents and specialists from other countries.
The main recent trend is a stricter approach to the use of CLCs instead of employment contracts. The position of government authorities is that a CLC may not be used to formalize what are effectively employment relations. If an inspection establishes that a civil law contract conceals permanent work with characteristics of employment relations (subordination to internal regulations, an assigned workplace, regular fixed remuneration, and performance of a job function rather than a one-off assignment), the relationship may be reclassified and the employer may be held liable.
Specific considerations arise in “non-standard” situations: a CLC with the company’s own employee for a one-off service, with the director of an LLP (for example, for vehicle rental), or with a non-resident who is a citizen of another country and provides services remotely. Each such case requires an individual assessment of the contractor’s status, the place where the services are provided, and the resulting obligations. It is therefore especially important to rely on current rules and official clarifications rather than general templates.
Taxes and mandatory payments under a CLC
Payments under a CLC generally do not remain “outside” the tax system. Income received by individuals under such contracts gives rise to obligations for individual income tax, as well as mandatory pension contributions, social contributions, and health insurance contributions. The procedure for calculating, withholding, and paying them depends on the specific circumstances and the contractor’s status.
To avoid errors, it is important to rely on primary sources—the Tax Code, the Social Code, and official clarifications from the authorized bodies, since these determine the current rates, bases, limits, and procedure for applying deductions. Rates, maximum income amounts used to calculate contributions, and the rules for applying deductions are periodically revised, so specific figures must always be checked against the legislation in force on the payment date.
In most cases, the customer company acts as the tax agent and withholds the required amounts when paying the income. However, there are situations in which the income recipient is responsible for filing declarations and making payments. Therefore, the first step should always be to determine who is the payer and tax agent under the specific contract and exactly which payments arise.
How to record settlements in accounting and reporting
Payments and withholdings under CLCs are recorded in accounting and tax reporting. Accrued income and withheld amounts are included in the individual income tax and social tax declaration (form 200.00). Correct completion of the relevant lines is mandatory to ensure that the data reconcile and that no discrepancies arise during desk audits.
Standard “1C” configurations for Kazakhstan provide mechanisms for accounting for settlements with individuals under CLCs, calculating withholdings, and preparing reports. The practical procedure usually includes:
- registering the contract and the individual contractor in the system; - accruing income on the basis of a completion certificate for work performed (services provided); - calculating and withholding mandatory payments in accordance with the settings and current rules; - processing the payment and recording the accounting entries; - transferring the data to tax reporting.
- Particular attention should be paid to the correct application of deductions: an incorrectly overstated deduction is a common cause of discrepancies that subsequently have to be corrected. If the calculation has “gone wrong,” it should be reviewed systematically—from the accrual settings to the data included in the report.
- What to do: a practical checklist
- To work safely with CLCs, follow this simple approach:
- Check the nature of the relationship. If it is actually permanent work involving subordination to internal regulations and regular remuneration, it is more appropriate to conclude an employment contract rather than a CLC. This reduces the risk of reclassification and claims.
- Describe the result in the contract. Clearly specify the subject matter—the particular work or service—the delivery and acceptance procedure, deadlines, and cost. Document completion with certificates.
- Determine the obligations in advance. Before making payment, establish who is the tax agent and which payments arise, especially if the contractor is a non-resident, a director, or your own employee.
- Check the current rules. Verify rates, limits, and the procedure for applying deductions against the current versions of the Tax and Social Codes and official clarifications as of the transaction date.
- Maintain accurate records. Configure accruals in “1C,” check the withheld amounts, and verify that income is correctly reported.
Frequently Asked Questions
Can a CLC be concluded in 2026? — Yes, civil law contracts are not prohibited as such. The restriction concerns their use instead of employment contracts: a CLC must not be used where there are actual characteristics of employment relations.
How does a CLC differ from an employment contract? — Under an employment contract, a person performs a job function subject to internal regulations and receives regular remuneration, and is entitled to guarantees (leave, etc.). Under a CLC, payment is made for a specific result of work or service, and the contractor independently organizes their activities.
Who pays taxes and contributions under a CLC? — In most cases, the customer acts as the tax agent and withholds the required payments when paying the income. However, in some cases, the income recipient may be responsible for filing declarations and making payments, so the status must be determined for each contract.
In which tax return should income under a CLC be reported? — Accrued income and withheld amounts are reported in the individual income tax and social tax declaration (form 200.00) in the relevant lines.
What are the consequences of substituting a CLC for an employment contract? — The relationship may be reclassified as employment, and the employer may be held liable. Specific penalties should be checked against current legislation and official clarifications as of the current date.