Ask HN: How to contract for US companies as EU national | Hacker News Reader

Ask HN: How to contract for US companies as EU national

58 pointsiExploder62 comments

Hi folks,

does anyone have experience they could share about contracting for US companies from Europe as EU national?

I'm investigating this as being a bit tired with the lack of contract / remote / engineering first culture in the EU. I hope this will be an interesting topic for a few people.

After some googling, I'm under the perception that US companies are mostly looking for remote workers inside the US, however, there must be companies in the US who are looking to find specialists in the EU. Are there any sites that bring together companies and offshore contractors (not upwork, I'm thinking about niche or expert sites)?

I'm not sure about the legal obligations on either end. Does the company or the contractor need to register somewhere or pay special taxes in the US to provide services in the US?

View on HN

I did contract work for an American company from the EU for 6 months.

I set up a one man company (with unlimited liability ...) and just sent invoices to the American company and they paid to my bank. Then I paid the taxes myself locally.

[Edit: My company was not based in the US.]

It is very doable if you got a lead.

Yep, you just basically need to set up a US LLC or whatever via firstbase/stripe atlas and other alternatives.

The costs will vary but mostly is the accountant, should be more than worth the cost tho.

There's also deel/remote which can handle this for the companies not having to require you to become a contractor, but they take their cut so YMMV, also your hiring company would need to -hire- their services

I think the OP meant a sole-tradership in their country. Businesses from different countries can trade, and it's easier to deal with one tax and legal system instead of two.

I set up the company where I live, not in the US. I can't imagine the trouble to setup an American company and bank account without living there.

It was total liability too, otherwise I would have needed a board and accountant. But since the company had no assets (other than the invoice money for some days) or debt it was low risk.

this makes sense, however I'm thinking having setup a local US llc might be better for optics

Setting up a US company is going to make your life far far harder than it needs to be from a tax perspective.

Optics of your customer ? Maybe but not really, unless you're planning to lie or be vague about where you are located.

Optics of your local tax office ? Definitely not, they're going to view you as trying to skip around local taxes.

Since you’re not resident in the US anyway, it probably won’t make any difference to the company hiring you. Most companies routinely pay foreign invoices.

Basically, if you’re not in the US, they know they’ll have a hard time suing you. The LLC won’t help obscure that.

If you go the US LLC route, make sure you understand the tax implications. Preparing your American tax return may be very expensive. (When I lived in NYC as a European expat, the paperwork for my private tax return cost several thousand dollars each year. American tax advisers who have experience handling foreign professionals know their price.)

... or it mighty be worse

Same here. I set myself up as a sole-trader, and issued invoices on a monthly basis.

Locally, in Finland, I declared my income and paid the taxes and made other withholdings as appropriate, but the whole thing wasn't a big deal.

Same thing a guy I know that works a float does.

He simply sends an invoice.

It is very doable if you got a lead.

And highly improbable without n > 0 leads.

Even just applying for US companies who are looking for remote-in-US sometimes works if you have all your ducks in a row (if they don't have to do much to get you on board). I would say opening a one-person company is enough (it is in my experience). Personally I go for a little more complex constructions because it's often quite hard to optimise for tax with the one person structures in the EU (as far as I know them here). Besides signing all kinds of contracts (under US law), I haven't seen many issues.

Smaller US based companies are more likely accommodate you, if they like what you bring to the table. Common arrangement is to start a company in the EU and your company will invoice the US company.

Taxes: I am not a lawyer, pay a specialist to confirm this part. You fill in either a W-8 BEN (as an individual) or a W-8BEN-E (as a company) and the company keeps this on their records, which basically says "the US has a double taxation treaty with my country so the US co should not withhold taxes", which for most EU countries is in place. You might have to dig through the specific treaty and find the appropriate section that describes withholding percent on the type of income. Search for information regarding those two forms. IIRC Upwork makes service providers fill and send those forms, or used to back in the day.

> You fill in either a W-8 BEN (as an individual) or a W-8BEN-E (as a company)

thank you for this info. Ive heard something similar with relation to dividend payments from US, which in the end might complicate things, but its a good indication of what needs to be done.

> Smaller US based companies are more likely accommodate you, if they like what you bring to the table. Common arrangement is to start a company in the EU and your company will invoice the US company.

Any thoughts on how you find them? US job boards? Recruiters? Cold emails?

I've only filled W-8 BEN forms for personal trading.

As a small business in Poland, I'm issuing invoices to North American businesses with no added VAT (netto==brutto) and a side note that tax is a liability of the party receiving an invoice.

When purchasing services from countries that have "no double tax" treaty with Poland, I'm gathering "certificates of tax residency" which abroad businesses get from revenue government bodies like IRS or CRA.

thanks, this is what I did when invoicing to the UK. For W-8 BEN do you need to report income from sales of services in the US along with income from dividend / capital gains?

I need to report income from stock shares sold abroad (Nasdaq etc) once a year. To my understanding, US' IRS informs my local revenue gov body of my sales and that's what W-8 BEN was signed for. I've only seen these forms within brokerage platforms.

I have no knowledge of it being in any way related to my small business but there's a possibility that my accountant is doing it. Unlikely and I've only heard of W-8 BEN in relation to trading shares, bonds etc which I'm doing as a private person.

Services performed in another country are not US source income and should not be taxed on the United States. Capital gains are also not taxed by the United States. However, interest income and dividends on US equities are generally US source income and without a treaty, owning a brokerage account will generate a us tax liability

We’re building this for ourselves at Gumroad: Flexile.com

It’s currently SaaS to manage contracts, onboarding, and payments. It will expand over the course of this year into a marketplace.

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.

> 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...

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.

They don't pay corporation tax on your salary. They do pay employer's NI, though.

> contracting for one customer for more than 1 year or so is prohibited

Why?

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)

> 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.

> 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.

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.

> 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.

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

>yeah I think Germany and Austria have it right.

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.

Ok, you raised some very good points. first things first, you do get unemployment and sick benefits if you insure yourself, as self employed this is voluntary in Germany and in Austria you do get some basic coverage with statutory insurance afaik.

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.

>I'm talking about tax avoidance, again

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.

Who's to say they are not upset at megacorporations?

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).

In Poland you pay 12% revenue tax or 19% linear income tax + lowered social security. A lot of developers don't even consider companies which don't have arrangements like this because the difference is so high. A no-name company which allows B2B can outbid Google (which pays like shit in Warsaw anyway).

Ok, so you're a contractor and set up some LLC or something (which pays 12% on its profits) but then you (the company) pay yourself (the person) a salary on a regular basis. Won't you still need to pay personal income tax on that income?

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.

It's a one person company, it doesn't have legal personhood. You are the company in that sense, you don't need to employ yourself, but there is no distinction between what company owns and what you do (sort of), so you have unlimited personal financial liability.

I see. I'm surprised to hear that this makes such a difference in Poland. In Germany your taxes in this case will be exactly the same.

Incorporating gives you a lot of options: pay eg. only 25% of your gross income as salary, the rest at the end of the year either as a bonus or as dividends. If there is a social security cap, it may even be beneficial to pay yourself out 25% first and second month and then 250% the third, depending on actual rates (social security contribution cap and progressive income rates). So in general, an LLC allows you a lot more flexibility to adapt to tax rules.

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.

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.

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.

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.

As far as legal obligations go, that's mostly going to depend on the country you're in, and how they're engaging you. If you're a full-time employee with an unlimited contract, ideally they'd employ you under their local legal entity. If they don't have one, they might use an "Employer of Record" service like Remote.com (never used them myself, and there are other companies that offer similar services).

If, however, you're a "contractor" but with an unlimited contract (or a contracted renewed repeatedly), and potentially a few other things that would give the impression you're an employee, then you might have some issues - I know that Germany will make your life miserable if you're determined to be engaging in "Scheinselbstständigkeit (or arbeitnehmerähnliche Selbstständiger)," or "Bogus self-employment (or quasi-employee self-employed)." The way around that is to file taxes as if you were employed and pay all the taxes that the company would ordinarily pay, which means that you need to account for that in your negotiations, plus the costs of a tax accountant if you're not comfortable doing that yourself. I don't know which country you're in, but it's something to look into.

If you're a genuine contractor who regularly switches companies (or at least multiple regular clients, depending on local law/etc) then I don't think there are any issues that would be specific to the US - you'd have to deal with things like VAT, currency conversion issues, possibly different tax years, etc, etc, but I'd also expect those to be common issues with any local contractor who works with clients in other countries.

Aside from directly incorporating a company yourself, there are also payroll firms that will basically take a cut to turn your (possibly international) freelance/contract income into a salary.

It's kind of your own company as a service so naturally it is more expensive than doing everything yourself before considering your time cost/efficiency.

I have done contractor work for American startups (mostly YC) based in Silicon Valley for the last 7 years.

Like many others in this thread, I set up a one man company, and I invoice my client[s] every month to receive the money on a Wise (previously Transferwise) business account in USD, then every year I do take care of paying taxes in my country with the help of my accountant. I'd like to highlight that Wise is likely the best option to receive USD for EU contractors/consultant, during my first year I didn't use it and I lost something around 1.5K USD because of opaque exchange rates and fees... :facepalm:

If they are really pedantic and careful, they might ask you to fill W-8 BEN / W-8BEN-E form, however the majority of my clients didn't.

Network did it for me. Many people in different functions in the company won't like the arrangement, so you will need an insider who personally fights to hire you.

> Are there any sites that bring together companies and offshore contractors (not upwork, I'm thinking about niche or expert sites)?

The best you'll likely do on that front is the monthly Freelancer / Seeking Freelancer post on HN. I don't know what kind of success rate people have with those.

Most contracting ends up being through personal relationships though.

The larger tech companies all have a presence in the EU, could you not contract with those?

(Otherwise, the main issue which comes to mind is double-taxation, you may have to pay income tax in both the US and wherever you are in the EU, as the US seldom has tax treaties with other countries that avoid double-taxation.)

Unless OP incorporates in the US there shouldn't be any double-taxation.

> The larger tech companies all have a presence in the EU, could you not contract with those?

my experience so far was working with small to medium sized businesses and this is where I felt the most comfortable. no experience with big tech, not even sure if they would want to employ me, probably not.

> no experience with big tech, not even sure if they would want to employ me, probably not.

why not? if you're interested, what have you got to lose by interviewing?

Most are only allowing employment, they don't contract single people to not fall under false employment laws (even if unenforced in the given country).

Most large US companies only have sales and support offices in the EU.

> I'm investigating this as being a bit tired with the lack of contract / remote / engineering first culture in the EU.

A little beside the point of the question, but what’s needed to change that culture? Surely, organizing labor is not difficult over there.

I think a lot of managers would prefer to see someone sitting in a chair and being able to control them on a fixed (low) salary, than to let people work remotely and have freedom of managing their own time and a competitive edge of freelancing.

A good question. The UK has nearly killed off its contractnig industry with increased IR35 (regulatory) requirements. Given tax hikes pay is rather low too.

I have been at some US companies that had people from Europe working there. They were fully remote companies.

The contractor can use a service like gusto.com and boom bob’s your uncle.

TopTal does exactly this - it isn’t easy to get into but the rates are good and they have plenty of us based roles.