4 ms·

> 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,

> 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
        The U.K. taxes income from work more than any other income. If you got paid 150k gross you’d end up with 80k net in your bank account after paying both parts of NI (23k) and income tax (46k) If you “earnt” 150k from renting out a property you only pay the income tax, so net 96k. If you made 150k capital gains you net 108k.
      - codethief 3y ago
        > a) it lowers the tax burden for the hiring company, so they are willing to allocate some of that saving into pay Is it really the tax burden or the social security burden? > so they are willing to allocate some of that saving into pay Sure, but as a contractor you will also have to take care of social security etc. yourself, which adds to your costs. > b) it allows the contractor to optimize costs in tax-efficient ways. I'd be interested in hearing what that would look like exactly! In Germany you have a bit of leeway but your overall taxes (at the LLC & personal level together) will still be comparable.
    - iExploder 3y ago
      yeah I think Germany and Austria have it right. things that are possible in some eastern EU countries can be easily considered tax avoidance at best and deliberate holes in laws that benefit certain people, this is reason why some people there can make the same or more after tax income compared to western europe. imo its a question of time when EU decides to clamp down on this if they can paying 0 % tax on capital gains and 7% tax on dividends, no social and health care charges is quite a thing when you compare the laws that govern this in western europe
- martin8412 3y ago
  Because they don't want companies using it as a way to avoid the responsibilities that comes with real employment. The rule is to my knowledge however intended to keep companies in the same country from using it. In Denmark(same rule) I contracted for a single foreign company for years and just got lump sum into my personal account every month, after which I paid the corresponding taxes. I specifically called the tax authorities to ask and that's how they said to do it.
  - FirmwareBurner 3y ago
    But according to your own example, Danish rules are different than Germany, as you could freelance for multiple years to a single customer, as opposed to being limited to one year max.
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.

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
      The U.K. taxes income from work more than any other income. If you got paid 150k gross you’d end up with 80k net in your bank account after paying both parts of NI (23k) and income tax (46k) If you “earnt” 150k from renting out a property you only pay the income tax, so net 96k. If you made 150k capital gains you net 108k.
    - codethief 3y ago
      > a) it lowers the tax burden for the hiring company, so they are willing to allocate some of that saving into pay Is it really the tax burden or the social security burden? > so they are willing to allocate some of that saving into pay Sure, but as a contractor you will also have to take care of social security etc. yourself, which adds to your costs. > b) it allows the contractor to optimize costs in tax-efficient ways. I'd be interested in hearing what that would look like exactly! In Germany you have a bit of leeway but your overall taxes (at the LLC & personal level together) will still be comparable.
  - iExploder 3y ago
    yeah I think Germany and Austria have it right. things that are possible in some eastern EU countries can be easily considered tax avoidance at best and deliberate holes in laws that benefit certain people, this is reason why some people there can make the same or more after tax income compared to western europe. imo its a question of time when EU decides to clamp down on this if they can paying 0 % tax on capital gains and 7% tax on dividends, no social and health care charges is quite a thing when you compare the laws that govern this in western europe
martin8412 3y ago
Because they don't want companies using it as a way to avoid the responsibilities that comes with real employment. The rule is to my knowledge however intended to keep companies in the same country from using it. In Denmark(same rule) I contracted for a single foreign company for years and just got lump sum into my personal account every month, after which I paid the corresponding taxes. I specifically called the tax authorities to ask and that's how they said to do it.
- FirmwareBurner 3y ago
  But according to your own example, Danish rules are different than Germany, as you could freelance for multiple years to a single customer, as opposed to being limited to one year max.

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.