Untrue, you can work with a freelancer tax card. You can't bill with VAT and deduct that from your costs as an entrepreneur if you do so, but you don't need to register anything in order to work as a freelancer.
However, self employed workers can write off work related expenses. This may help offset the higher taxes. On the other hand, as a freelance web developer, my overhead is so low I don't even bother with deductions (I'm living in the Philippines to take advantage of the freedom of self employment but costs are super low here.)
I made the switch to self-employed in 2012. Then back to employment last year, during the Covid lockdown. And recently back to self-employed again.
On the whole, I prefer the freedom of being self-employed, especially in regard to time off; I take take as much or as little time off as a want, whereas in employment, I'm limited to what my contract allows. Of course I can buy extra or have them paid out, but it's really the extra bureaucracy of working for a company that I dislike. Working for myself is easier.
But another big difference I noticed is compensation: employment was a massive pay cut. And this seems consistent with previous experiences; Dutch employers just don't want to pay that much for software engineers. As a freelancer, it's easy to make 50% more. It's not an easy comparison because I also have to pay more taxes, save up for my own retirement, pay my own disability and other insurance that's normally taken care of by the employer, but even then, the difference is stark.
If more people becoming self-employed means more employers will raise developer and other salaries, that would be awesome.
The author of this blog posting seems to equate being self employed with having a startup or online business. This is certainly a great thing to do, but there are other paths to self-employment. And self employment isn't for everyone.
Take me, for example: I'm a developer, and I've been an independent Web/database consultant for 16 years now. I feel incredibly fortunate to be able to have my job. I work with half a dozen different companies and organizations each week, I meet new people and businesses all of the time, I get to learn and work with a variety of technologies, I work as a senior technical person rather than as a manager (which would be expected at most companies), and I have a fair amount of control over when and how I work -- although with three kids, a mortgage, and a bunch of clients, I definitely work more hours than I would if I were an employee somewhere. (But I really enjoy what I do, so that's OK.) I don't have to ask anyone for permission to go on vacation, to go to a conference, or just to pick up my kids from school once per week.
That said, I remember when the current recession started, and high-tech companies were laying people off in droves. I told my accountant that I was worried about a large crop of these laid-off workers starting to compete with me. He told me that I shouldn't worry, that most people want to just have a steady paycheck, and don't want to deal with all of the things that a small business owner needs to worry about.
And indeed, being in business for yourself means dealing with the month-to-month worries of ensuring you have enough income, that you're marketing yourself in the right ways (and yes, I market myself, although it might not be obvious at first glance), that you know how to choose clients, that you can negotiate with clients and banks, and that you can balance the various demands that your clients put on your time. It's definitely not for everyone; my wife has gotten used to the ups and downs of our income (and we live pretty well overall), but it's not nearly as straightforward or relaxed as having a paycheck come in every month.
If you can pull it off, though, then being self-employed (whether in a startup or a business like mine) is incredibly rewarding and exciting. I've been offered full-time jobs by a number of companies, and while I've always said, "I'm willing to consider anything," the fact is that I'm really enjoying myself now, and can't imagine returning to the days when I went to the same office, with the same people, and the same tasks day after day.
That presumably just means that you have to register as a sole proprietor. Some countries have special freelancer/self-employed tax categories (or whatever), others don't.
Self-employment certainly isn't for everybody, but your "companies afford certain things to their employees that freelances do not receive" deserves a response.
When you are self-employed, you employ yourself. Most if not all of the benefits that a company can provide to its employees, you can provide to yourself. Many of these benefits qualify as business deductions, and while some of them (such as medical insurance) might cost more when not purchased as part a group (company), that's not always the case. For instance, if you're young, in relatively good health and have reasonable earnings, a high-deductible health plan coupled with a health savings account might actually be more attractive than what you receive from the average employer.
In other areas, such as retirement, self-employment can be a boon. If you're a sole proprietor, for instance, you can set up a self-directed 401(k). Each year, you can contribute up to $17,500 as an elective deferral and up to 20% of your net self-employment income up to a total of $51,000 (at 2013 limits). So if you're doing brisk business as a freelancer, it can be very easy to save more than you ever likely would if you worked at a company and just took the 3-5% 401(k) match (assuming this is even offered).
Can working for a company be more lucrative, more secure, and easier for some people? Absolutely. But for others, working for yourself can be even more lucrative, even more secure and far more enjoyable.
In most countries operating as a limited company would solve that. The "consequences" as a personal freelancer would involve paying some more tax, which is not desirable, but is an option.
You can actually use them, but probably are not, since you're a high income, high income tax paying person? If you can earn $300k a year as an entrepreneur, vs $300k as an employee, then it's a lot more likely you'll be paying significantly less taxes when going the self employed route.
> Where do self-employed people (freelancers) get taxed as if they are employees?
In France, for example.
There's no actual concept of "Freelance" here [0]. Legally you're either an employee or you have some form of "company". An "independent" is basically someone running a company of one. But it's legally still a company.
If it's an "individual enterprise," you pay income tax and social security just like an employee. That's basically your revenue minus an allowance (40% I think but I'm not sure).
If you're a regular company, you'll either pay yourself a salary, in which case you pay almost all the taxes as a salaried person does (except for unemployment, which you don't get if your business falls through) or you pay yourself through dividends, in which case you pay a corporate tax (on the company's profits) + income tax (on your dividends). Even though there's a social security part levied on the dividends, you don't actually get anything in return. You're basically considered as someone who doesn't contribute to social security (no retirement and only basic health care — basically emergency). However, for any program that has an upper limit on income, your dividends are taken into account. So no social housing for you.
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[0] There's no such thing as "freelance" in France. There are some jobs that are more or less close, but they're related to show-business. For the purpose of the IT sector, there's no such thing as "freelance".
In my country there is something called "self-invoicing", basically the company issues the invoice on-behalf of a freelancer, withholds the maximum tax at source (eg 50%) and then pays the rest to the freelancer. Not much different from a payroll.
It is then the responsibility of the unregistered freelancer to go and reclaim their share of taxes from the tax authority (since they usually don't have to pay taxes, not even VAT, until they reach a certain annual income limit). IMO, it is much less of a hassle to simply register as a sole proprietor correctly than to go through this process.
Also, working with such people (who didn't even bothered to register as self-employed) can create accounting and legal/HR headaches for a properly run company.
The first time I encountered this was when the startup company, I worked for, hired an 18 y.o. freelancer for a one-time job.
Nex time at another company, we wanted to purchase a software, and turned out it was just a single guy without any business license or a company, so our CFO had to spend days to draw a purchase contract, so he could've been paid.
This would be quite risky where I am from, for both the freelancer and the employer. Being self employed, but only for a single customer, is false self-employment. If you get caught, your employer has to pay taxes and social security contributions retroactively for up to 4 years, and afaik both the employer and the freelancer are liable for the money owed to the tax office and social securities. If you are caught doing this premeditated, it might be a criminal offence.
In some countries say like India, a freelancer can register as a one person business/one person company and all income treated as business income. This way your tax payable becomes based on income-business expenses similar to an LLC or corp.
Well not everyone is a software engineer who can create products from thin air while sitting on the toilet. Some people like the stability etc.
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