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For the tax calculation, while it is not favourable in US; it works really well in the contractor's favour in some countries. Having friends who work as contrac

For the tax calculation, while it is not favourable in US; it works really well in the contractor's favour in some countries. Having friends who work as contractors (either for remote companies or freelance like), I know this works well in UK and India. The way it works in their favour is by reducing the taxable income by claiming "expenses"(what they do sometimes enters into an ethically grey territory). Apart from legitimate work related expenses, some people go creative and claim home rent by showing it as an extension of office space, show salary paid to others(like your partner if they don't have a salary or have way less income, so lower tax bracket). As far as I have heard, depending on the country, the tax paid can be as low as 1/4th of what an employee will pay on a USD 100k salary.

virgilp 5y ago
It can be WAY lower. When I worked as a freelancer, the best option here was something called "normed-income tax". Basically, for self-employed people, the state would offer you the option of doing no paperwork and letting them decide how much you earn - and you just paid that fixed tax. Not sure what formula they used but it was extremely advantageous, they estimated about 1/10th of my actual earnings.
mattlondon 5y ago
I think the benefits in the UK in terms of tax rate are slowly being chipped away. The wheeze is/was you work, but your client pays a business that you own for your time/expertise. You then have your business bpay you minimum wage (so no income tax) and take the rest as dividends from the company (which are taxed lower than "income"). The tax rates/allowances for dividends have reduced though and there are new regulations on "disguised employment" that make it less lucrative. I think it is still pretty good though, just perhaps not as good as it was (in UK we have NHS so you don't need health care, and employers often match up to 7% for pension contributions)
- ealexhudson 5y ago
  The "wheeze" you talking about is just avoiding double taxation. The business pays corporation tax on the profit it makes : while salaries are an expense, dividends are not. So you're paying 19% on revenue above the "minimum wage" plus your expenses, and then tax again on the dividends. Whether this works or for you or not depends very much on circumstances. If you're willing to have cash build up in the business it works, if you want to take home over £60k/year gross it starts making less sense.

virgilp 5y ago

It can be WAY lower. When I worked as a freelancer, the best option here was something called "normed-income tax". Basically, for self-employed people, the state would offer you the option of doing no paperwork and letting them decide how much you earn - and you just paid that fixed tax. Not sure what formula they used but it was extremely advantageous, they estimated about 1/10th of my actual earnings.

mattlondon 5y ago

I think the benefits in the UK in terms of tax rate are slowly being chipped away. The wheeze is/was you work, but your client pays a business that you own for your time/expertise. You then have your business bpay you minimum wage (so no income tax) and take the rest as dividends from the company (which are taxed lower than "income"). The tax rates/allowances for dividends have reduced though and there are new regulations on "disguised employment" that make it less lucrative. I think it is still pretty good though, just perhaps not as good as it was (in UK we have NHS so you don't need health care, and employers often match up to 7% for pension contributions)

ealexhudson 5y ago
The "wheeze" you talking about is just avoiding double taxation. The business pays corporation tax on the profit it makes : while salaries are an expense, dividends are not. So you're paying 19% on revenue above the "minimum wage" plus your expenses, and then tax again on the dividends. Whether this works or for you or not depends very much on circumstances. If you're willing to have cash build up in the business it works, if you want to take home over £60k/year gross it starts making less sense.