> contracting for one customer for more than 1 year or so is prohibited
Why?
Why?
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.
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)
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.
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.
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.
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.
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
What do you mean by "do it right"? They tax you to death as a self employed contractor while you carry the risk and don't benefit from pension and any kind of state benefits like sick leave. You're basically fucked from both ends, you pay the same amount of taxes as an employee, and receive nothing from the state. That's absolutely mental.
>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
How is it tax avoidance when they're just following the local law? The law is made to tax self employed people less because they usually work more hours, receive less social benefits, and take on more risks than regular employees.
You want talk about tax avoidance? Ok, let's talk about the cash driven underground "Schwarzgeld' economies in Germany and Austria where family small business owners, especially in rural areas, don't issue receipts and pay no taxes on their business dealing in cash, while amassing missive wealth and real estate empires.
I was recently in some villager festival in Austria, it was 10 Euros for a cheap fast-food schnitzel served from a trailer, and 10 Euros for a cheese sausage that costs max 50 cents from Metro in bulk, basically over 1000% markups and all took only cash, and issued no receipt, while the family had several houses here and in Croatia and drove Porsches and other expensive sports cars.
Now that's tax avoidance, and the holes in the city/government budgets for welfare are taken out of the average salaried worker who can't do cash drive tax avoidance.
The specific case you described is not tax avoidance but tax fraud and anyone can replicate it or report it depending on their preferred moral inclination.
I'm talking about tax avoidance, again, I'm from eastern Europe and I know a _lot_ of people who have dependant sources of income but act as independent contractors despite working countless years for one employer and as a result paying much less on taxes despite having 5x income of average employee and this is taken out of said average employees salary who don't have the opportunity to work in high demand IT field whether due to education or not having above average IQ.
Of course there are a lot of people like you described in food, entertainment, maintenance or house building service who take cash on hand and never report it, but as said this is fraud not avoidance.
How is working as a freelancer for a foreign entity tax avoidance, when your following the freelancing laws in your country and what you're doing is 10% legal? Just because you're working for a foreign company remotely because the company doesn't have an office here, doesn't mean you're a tax dodger.
It just reads like you have a personal vendetta against people working as freelancers for paying less taxes in some countries even though what they're doing is 100% legal.
Why are you so upset about some SW dev freelancing remotely for some foreign company to provide for his family, and not upset about all those mega-corporations who have perfected the art of tax avoidance down to a T, that they basically pay no taxes in your country because they siphon everything trough some Dutch/Irish/Luxemburgish funnel.
However, I don't see them being upset at anyone. In Serbia, I fully used similar benefits before they were forbidden, but I never considered this to be "fair": it was simply available for other reasons (avoid bookkeeping overhead for tiny businesses) and my foreign contractor (really, employment) relationship fit in just well. Yes, it was 100% legal, but it would be disingenious to claim how a local employee making similar tax and social security contributions was making roughly 5 times less net income is "fair". State was certainly benefiting from me exporting services, but not 5x as much.
When it became abused by local companies, those independence provisions were added in, effectively prohibiting it, but I wasn't "upset" even though it meant a larger tax burden and a more complicated setup (an LLC I am employed in).
Or did you mean to say that you (the person) only receive money from your LLC in the form of yearly dividends? In this case, however, it'd be 12% taxes at the LLC level + whatever the Polish tax rate is on capital gains.
However, social security caps used to be much lower for self-employment or single-person entreprenuerships in some countries, which resulted in local companies asking de-facto employees to set up self-employment single-person businesses, and pretend to have a b2b relationship, with no employee protections and smaller taxes.