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A contract of service creates an employer-employee relationship. For example, a contract executed between a company and its employees or between you and your driver. On the other hand, a contract for services is a contract between two independent parties (often called independent contractors) for rendering services of any nature. For example, a contract between company A and company B for supply of manpower or the relationship between a rider in a uber cab and an uber driver.There are distinct legal consequences on an employer under the two forms of contract. In case of a contract of service, the employer controls all aspects of the job at hand ( i.e. the manner, nature and execution of the services by its employee). For example, a company may through an employment contract authorise its chief executive officer with certain powers, it can monitor the execution of responsibilities by the ceo from time to time and even order a course correction if so required. On the contrary, in case of a contract for services, company A only monitors / controls the end objective (i.e. supply of manpower by company B) but does not bother about it control the manner in which company B proceeds to fulfil and implements its obligations.Given the element of control that an employer has in case of a contract of service, in most jurisdictions an employer is seemed vicariously liabile for breaches / legal non compliances by its employee. For example, an employer may have to pay penalties for any accidents caused by its driver. Similarly, companies act in most jurisdictions, provide for class action / derivative action claims against a company (being an employer) for legal violations by its employees. Few may recall that Satyam was sued in the US by its shareholders/ ADR holders for fraud by Mr Raju.In a contract for services, the relationship between the parties is purely one of independent contracts (and one party cannot be held vicariously liable for breah by the other contracting party). For example, a passenger in an uber car cannot be sued for compensation resulting to a pedestrian by the driver of the uber car.There is already a copious amount of literature on this subject. Most discussions on this subject and distinctions between these two concepts are focused from the perspective of vicarious liability attaching to an employer. From a practical perspective, the determination of a contract being a contract of service or for services needs to be judged and factually established.Trust this helps.

It depends on taxation form of your entity. If you register a private entrepreneur you’ll pay 5% + banking expenditures (around 0.8%), plus 800 uah each month (around 2400 uah per quarter) of labor tax. Direct contract with foreign company is possible, and if it is IT business or rendering of service, that you may even avoid contract and completion acts (use simple invoice to get the money like here: Invoice_direct_final.doc ). However, check with local lawyers if a foreigner can open PE (Private Entrepreneur) and what is the procedure. BUT, if you work as employee, than your employer shall pay all taxes, including yours, that will be withdrawn from your salary: 18% personal income tax (called NDFL) + 1.5% military duty and labor tax of 220 uah per month. You may not bother with that

Besides so many answers elucidating what the law is, let me attempt to explain the intent of the law.Its an arrangement of the income tax authorities to know who has earned howmuch.Income could be emanating through sale of products or services.Sale of productsOne cannot conclude that a product sold would result in profit at the point of sale. Of course there would be margins built in the price but it could result in net profit or loss. Thus, at the point od sale, we dont know if it results in an income to the seller. So no TDS on sales.Besides,There are procedures to trace the manufacture of products and sale of products. Excise and sales tax has check posts and movement of goods without excise invoice / commercial invoice end up confiscated. Somehow, the manufacture and sales are traced by the tax authorities and with that income is arrived.Sale of services.What goes unnoticed out of the radar of excise and sales tax check posts are the services rendered and the consideration recieved for the services. If the service reciever and service provider are silent, this income goes unreported.So, a conflict of interest is created between the parties such that the transaction gets reported. I.e., only if the service reciever (who makes payment for service recieved) informs the government about the transaction, he can write that as an expense for calculating his profit.Not reporting is costly for the service reciever. Because his profit will get higher and so higher income tax for service reciever. So it will be reported without fail.Thus, withholding tax (or) TDSA percentage of service payment is deducted (withheld) and paid to the income tax department along with the details of transaction like how much was paid, to whom it is paid (PAN of reciever) % deducted, date of payment.With these details, all the service reciepts happening across the country falls in the radar of income tax department, which will later on be assessed and taxed.Various kinds of services, like salary, contract, rent, professional fees are classified and enlisted in the income tax act that entails deduction at varied rates, depending on the transaction, form of business of the service provider.The myriad of differring rates in indian income tax act blurr the inteneded purpose of tracing the income but try to accomplish tax collection through TDS. It makes the lives of both the deductors and service providers and the lives of taxmen miserable.