Are you thinking about hiring employees? Congratulations! That means your business is growing. 🤩
However, as an international business, it is normal that you have doubts when hiring. That is why we have written this article.
It is important to distinguish between hiring professionals or freelancers, employees, or people with geographical independence.
Let’s explain each case. 😉
Professionals or freelancers
If your employees are or can become professionals or self-employed in their countries of residence, this is a good option for your business.
In this case, even if you sign a work contract with them, these professionals will issue invoices regularly for their work, which means that you will not pay them a salary, but an invoice for their services.
Your company will declare these invoices as expenses, so as this money is reinvested in the company, it will be tax-free. Another advantage is that these people will be contributing to their social security and pension as professionals in their countries.
Another option is hiring employees or workers. In this case, we have to distinguish between employees living in Estonia and those outside the Baltic country.
Employees living in Estonia
Hiring Estonian employees is one of the easiest administrative situations.
Since your employee lives in Estonia and works for an Estonian company, you will pay full taxes on the employee’s salary, including all social benefits such as medical care, unemployment benefits, pension plans, etc.
And this is a great advantage, as workers will be contributing to social security and their pension in a totally regular situation.
On the other hand, it implies that you will pay corporation tax and income tax for all of the employee’s salary.
Employees living outside Estonia
If you want to hire employees outside Estonia, there are two options:
- That those employees become freelancers in their country of residence. It’s the easiest option and you will not have to pay taxes, as we discussed earlier. However, the employee is responsible for the tax obligations that he/she has in the country in which he/she resides or has had to register as a freelancer.
- The company registers and contributes to social taxes in the employee’s country. This may not require your company to be registered or open a branch in the country and it is a much more complex option. It is only recommendable if you have some reason to register your company in that country and it suits you.
People with geographical independence
As an exception, if you or any of your employees are geographically independent, without tax residence (for example, a digital nomad without tax residence), and this person proves it, your company will pay this person a contractor fee, so it will be this person’s responsibility to ensure that their situation is legal and not subject to the laws of another country.
Considerations when hiring employees
The most important aspects to consider when hiring employees is where they live and where they are tax residents.
Most countries (with the exception of the United States) levy taxes based on residence. This means that its citizens are considered tax residents of that country if they live in the country for 183 days or more a year, although this varies depending on the country.
This applies to both company members (board members and shareholders) and external employees.
The law comes first
You have already seen that you have different options to hire employees for your business, but before hiring, ask yourself what is the most advantageous option for your company.
If you have any questions, you can always contact us via chat.