Technological development has made it easier to reach out to the so-called freelancers, both domestically and worldwide. But in order to hire freelancers worldwide and pay them, you need to know how the process works. What 5 things do you, as an employer, need to bear in mind?
Why hire an international freelancer?
With widespread access to technology, companies can easily reach out to freelancers from all over the world and use their services. Why opt for such a cooperation? Here are some arguments:
- You are not limited to subcontractors from your country. You gain access to a larger range of specialists, regardless of where they are currently located.
- Worldwide freelancers show the company a different perspective. The experience of living in another country allows subcontractors to look at some of your activities from a different angle, which may be very beneficial for you.
- A worldwide freelancer knows how to reach potential clients from a particular country. You can only grow your business in a specific market if you meet the expectations of the consumers there and follow their habits.
These are just some of the advantages of hiring subcontractors from another country. Despite the benefits that come with it, you may have concerns about how to legally hire and pay foreign freelancers. Below we’ll discuss a few formalities that you need to know.
Tax residence
In the simplest terms, tax residence is the place where a taxpayer has all his or her income taxed. Depending on the country, the conditions determining tax residency may vary. In some countries, for example, a factor is whether the taxpayer is domiciled in their country or has resided there for more than a certain statutory period (e.g. in Germany it is six months, in Poland 183 days).
Tax residency is important because, firstly, it determines the settlement of accounts with the freelancer and, secondly, it allows you to pay the relevant taxes on time and avoid double taxation. Tax residency determines how you should hire and pay foreign freelancers.
Consider, for example, Croatia, where you can settle any service with a freelancer by means of a contract of specific work, a copyright assignment agreement or an artist’s contract. Whereas in some countries, such as Romania and France, the freelancer is obliged to set up his or her own business and, as a result, settlement with the freelancer will be based on the subcontractor’s invoice.
Tax rate
Tax rates will vary depending on the tax residence of the freelancer Below you can find some onformation about tax rates for freelancers in three selected countries:
- the United States – freelancers’ tax rates depend on their income and tax status. The federal income tax system in the United States is progressive, meaning that as income increases, the tax rate increases. Rates fluctuate between 10% and 37%.
- Canada – tax rates depend on income and province. The tax system in Canada is also progressive, with rates ranging from 15% to 33%.
- United Kingdom – tax rates depend on the income and location of the freelancer – for example, rates in Scotland may differ from those in England, Wales or Northern Ireland.
Also, we’ve got a blog post on the topic of How to hire a freelancer from Italy, Argentina, Mexico and Ukraine where you’ll find information about country specific tax rates.
Special Q&A for you
Hiring and paying foreign freelancers can be complicated. If you’ve got any questions, then we’re here to help.
Ask our team of business experts, industry specialists and lawyers – we’ll come back with the best answers.
Currency exchange
If you want to hire and pay foreign freelancers you also need to pay attention to the currency in which the subcontractor will be paid. If the payment will be made in a different currency to the one used in your country, you will need to exchange it. You can do this through your bank or a currency exchange office. Remember, however, that the exchange rate will vary depending on current market conditions and the currency itself.
Conditions of payment
The conditions of payment specify in which currency the payment is to be made, its amount and the due date. Writing down such arrangements will allow you to avoid unnecessary disputes in the future. When working with a freelancer from abroad, you need to take into account the fees your bank may charge for making international transfers and the current exchange rate, which may be unfavourable to you on certain days.
Record keeping and accounting
If you want to hire and pay foreign freelancers the final element which you need to consider is record keeping and accounting.
Record all payments and arrangements that may be crucial for tax purposes. Keeping records of these types of documents will also allow you to better control your expenditures and carry out an analysis of whether the money invested in this way is yielding the expected results.
Accounting for freelancers from abroad is not that challenging if you decide to work with one/two people. Things may look a little different when you manage a larger distributed team. First and foremost, you then have to work legally with everyone, i.e. sign a proper contract, take care of a number of obligations, familiarise yourself with the taxes applicable in the country in question, all this by studying the legal and tax regulations of the country in question.
Neglecting to do so can be very unprofitable for you. Illegal employment of freelancers carries serious consequences, including heavy fines/pecuniary penalties, loss or suspension of your business license, change of management, or a damaged reputation.
Hire and pay foreign freelancers legally
The process of paying freelancers worldwide gets simple with Useme. With just a few clicks, you’re able to manage international cooperations and get rid of thinking about legal issues, preparing contracts, archiving documentation and contacting your accountant every time you need to establish the terms and conditions of a subcontractor’s settlement.
Simply invite freelancers to Useme by requesting an invoice for the work that needs to be done.
Once freelancers upload the finished work into the system, you can accept it and the freelancer will receive the payment within 48 hours and you’ll receive an invoice. If your team of freelancers consists of more than one person, you can also pay them collectively.
If you’re interested in the topic of paying freelancers, you should also read this blog post.
