Comment by morpheuskafka
2 years ago
This will require research on each countries laws, some countries have very rigid definitions of what qualifies as employment and will not allow those payments to be classified as contract income, dividends, or anything else.
The way I do it, I set up a limited liability company that is just my own name. I then charge for services rendered and income goes into a company in my sole ownership. I then pay salary to the only employee (me). This is common and completely legal.
> I set up a limited liability company that is just my own name. I then charge for services rendered and income goes into a company in my sole ownership. I then pay salary to the only employee (me). This is common and completely legal
This approach exploded fairly spectacularly in the UK for many of those deemed by the tax office (HMRC) to be using it purely as a device to attempt to avoid being "on payroll"
https://www.gov.uk/guidance/understanding-off-payroll-workin...
Even BBC presenters were setting up "personal service companies" to try and avoid taxes (allegedly at the urging of the BBC) and ended up owing the tax office a bunch of back taxes.
The issue here is not calculating a fair salary - and its an insanely popular way to avoid taxes all over the world. Tax authorities turn a blind eye, I suspect because the practice is just too common among politicians and their friends.
This might not be an issue if the corporate income tax + financial gains tax comes out the same as payroll tax. The bigger issue here is that you can use the remaining funds to invest and losses form a tax deduction base. More commonly however people just cram as much personal consumption inside the companies before paying out the salary, even things like travel and dining out. In the EU, VAT is commonly quite high and you get refunds on that if the expenses are on the company.
You can do this in Australia too. A simpler way is use a labour hire company, they keep you on payroll and bills the client for your work (an agreement has to be drawn between them and the company) (you need to submit a weekly timesheet). They take a commission (which includes services to run payroll and provide personal liability and professional indemnity insurance) and remkist the rest as normal salary.
I highly doubt this is completely legal, maybe unless you are not expensing the company anything (and transferring all of the revenue as salary).
In my country it is but you have to pay a fair salary and only expense strictly business related things. At the end of the month it's not illegal to have some funds remaining - as it can be because of irregular income, a business reality for many (most?).
This is basically how all sole proprietors work right? You have more reporting requirements as a LLC, but otherwise the same deal?