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Contracting work happening outside US territory by non-US citizens is not taxed in US. From a US company perspective, you can do your work as an individual or

Contracting work happening outside US territory by non-US citizens is not taxed in US. From a US company perspective, you can do your work as an individual or a local registered business entity: you agree to gross terms, and that's what you get, and they have that as an expense. However, many European countries require you to incorporate (at least a Ltd company) to gain proper "employment" and stop people from using contractor relationship as a tax loophole. Depending on your country of residence, your tax rates will differ. Estonia has started to offer completely digital companies, but I am unsure how that fits inwith your goals or legal requirements.

iExploder 3y ago
> From a US company perspective, you can do your work as an individual or a local registered business entity: you agree to gross terms, and that's what you get, and they have that as an expense. this seems the most sensible > However, many European countries require you to incorporate (at least a Ltd company) to gain proper "employment" and stop people from using contractor relationship as a tax loophole. I'm aware of UK's or Germany's regulation in this regard, the contracts have to be limited in duration and contracting for one customer for more than 1 year or so is prohibited, is this what you mean? Otherwise I'm not sure what the loophole would be, it's standard b2b relationship in my eyes...
- comprev 3y ago
  As a regular PAYE employee your employer pays corporation tax too. If a US company gave an individual a lump sum, not a company, the government would lose out on this additional revenue.
  - beojan 3y ago
    They don't pay corporation tax on your salary. They do pay employer's NI, though.
- nonethewiser 3y ago
  > contracting for one customer for more than 1 year or so is prohibited Why?
  - iExploder 3y ago
    there is some abuse around long term employees acting as contractors in some parts of europe to get tax benefits. it depends on the country but generally speaking it is more beneficial to be a contractor because of high taxes on employee income in EU. in germany for example, afaik, you can be considered employee if abusing this by providing services long term to a single customer (hence being considered dependent and not a free acting contractor), in austria the taxes for contractors are the same as for employees, this is my current experience. in slovakia where I'm originally some people setup 1 person llc's and pay themselves dividends instead of drawing salary as an employee (dividends are taxed with much lower rates than salary income + there is no social or health care deductions on dividend income)
    - codethief 3y ago
      > generally speaking it is more beneficial to be a contractor because of high taxes on employee income in EU. This is news to me. At least in Germany all income (except capital gains) is taxed more or less the same. The one thing that's different between employees and freelancers is social security. I think your sibling comment got it right: The stipulations are in place to prevent companies from avoiding the responsibilities of employment.
      - toyg 3y ago
        > This is news to me. It's definitely the case, in UK, that contractor pay can be significantly higher than regular employees' pay, because a) it lowers the tax burden for the hiring company, so they are willing to allocate some of that saving into pay, and b) it allows the contractor to optimize costs in tax-efficient ways.
        midasuni 3y ago
- necovek 3y ago
  Yes, that's what I mean: tax rates can sometimes be more favourable for "self-employment" (it is usually encouraged) and fewer employment protections are paid for. It will obviously differ by country. If you incorporate, then it is a standard B2B relationship.

iExploder 3y ago

> From a US company perspective, you can do your work as an individual or a local registered business entity: you agree to gross terms, and that's what you get, and they have that as an expense. this seems the most sensible > However, many European countries require you to incorporate (at least a Ltd company) to gain proper "employment" and stop people from using contractor relationship as a tax loophole. I'm aware of UK's or Germany's regulation in this regard, the contracts have to be limited in duration and contracting for one customer for more than 1 year or so is prohibited, is this what you mean? Otherwise I'm not sure what the loophole would be, it's standard b2b relationship in my eyes...

comprev 3y ago
As a regular PAYE employee your employer pays corporation tax too. If a US company gave an individual a lump sum, not a company, the government would lose out on this additional revenue.
- beojan 3y ago
  They don't pay corporation tax on your salary. They do pay employer's NI, though.
nonethewiser 3y ago
> contracting for one customer for more than 1 year or so is prohibited Why?
- iExploder 3y ago
  there is some abuse around long term employees acting as contractors in some parts of europe to get tax benefits. it depends on the country but generally speaking it is more beneficial to be a contractor because of high taxes on employee income in EU. in germany for example, afaik, you can be considered employee if abusing this by providing services long term to a single customer (hence being considered dependent and not a free acting contractor), in austria the taxes for contractors are the same as for employees, this is my current experience. in slovakia where I'm originally some people setup 1 person llc's and pay themselves dividends instead of drawing salary as an employee (dividends are taxed with much lower rates than salary income + there is no social or health care deductions on dividend income)
  - codethief 3y ago
    > generally speaking it is more beneficial to be a contractor because of high taxes on employee income in EU. This is news to me. At least in Germany all income (except capital gains) is taxed more or less the same. The one thing that's different between employees and freelancers is social security. I think your sibling comment got it right: The stipulations are in place to prevent companies from avoiding the responsibilities of employment.
    - toyg 3y ago
      > This is news to me. It's definitely the case, in UK, that contractor pay can be significantly higher than regular employees' pay, because a) it lowers the tax burden for the hiring company, so they are willing to allocate some of that saving into pay, and b) it allows the contractor to optimize costs in tax-efficient ways.
      - midasuni 3y ago
necovek 3y ago
Yes, that's what I mean: tax rates can sometimes be more favourable for "self-employment" (it is usually encouraged) and fewer employment protections are paid for. It will obviously differ by country. If you incorporate, then it is a standard B2B relationship.