b) I have set up a LLC. Of course I have to pay a lot of tax. If I want to have 100 dollars deposited to my account I have to charge my client 250 dollars. Still there are several benefits to having an LLC. It enables me to optimise how much I pay in tax, usually I can go from 60% tax to somewhere around 50%. I buy everything related to my business via the business. Conference trips, computers, headsets, screens, books. That way I can spend money "pre-tax", before I lose the 50% by paying it from the LLC as salary. Essentially I get those items for 50% off compared to if I had bought them with my own money. I can also get the VAT back.
When you have an LLC the contract between you and the client will actually be between the LLC and the client. That means you are not personally liable for any damages, for example if you get sick and can't deliver the client can't go after you personally. Also should you for some reason go bankrupt you are (typically) not personally liable.
Note that this is how it works in Sweden, but some of it might be applicable in Portugal.
60% tax, how absurd. I cringe at my US based 24% (+ 10% self employment) bracket. By the way, love Sweden (summers) though. Been to Stockholm a few times, the first for nearly 3 months.
It's 24% + 10% self employment + (NY? CA?) 9% state tax + Obamacare (often around 5% or more).
And if you have kids, you are paying a lot more stuff that is included as part of the deal in Sweden (and most other European countries).
And when your kids were born, you would have received 12 months paid maternity leave in Sweden (which can be divided among mom and dad).
If we are twenty, have no kids, no medical issues, and on an academic scholarship, the US taxes seem very low. In almost any other situation, they are comparable, even though they look much lower.
And especially at the top bracket, e.g. in NYC you have 39% federal + 13.5% state/local + health care ... which is almost the same 60%, except you get to pay $100K-$200K tuition for yourself or kids, and stuff like that.
Scandinavia is known for high benefits supported by high taxes. The real problem is when you have low benefits and high taxes. In my country, an high income freelancer (paying ~50% taxes) will hardly ever get unemployment, sick leave or child care benefits.
It's the same in the Netherlands. I pay upwards of 50% taxes, but don't get any unemployment, pension or other benefits/insurance. It's ridiculous in my book.
Don’t own a car, and obviously I don’t need health insurance ;). I do spend 15$ per month on home insurance.
Joking aside, I’ve heard several opinions that Sweden is a good country to start a startup in. Since there is a safety net to catch you in case things go sideways you can focus a lot more on the startup without worrying.
I am not Swedish, but I find it hard to believe this is your only option. Can't you pay yourself a smaller salary, and pay out the profits as a dividend, which is likely taxed way less? I have a (non-Swedish) LLC and it pays me dividends, not just salary.
I don't know a single company owner who pays themselves the entire company potential profit as salary like you seem to be doing, because this would just increase their tax burden.
Edit: from some quick googling, swedish corporate tax is 22% and dividend tax is 30%. So if taxation works the same as here, you'd still be effectively paying ~45% (1 - 0.78*0.7) tax. :/ Better than 60% though...
You get the 60% rate since you are paying the employer's taxes and your income taxes, right?
I guess if you paid yourself less (by effectively working less) that rate would come down a lot since both the employer's taxes and income taxes are rather progressive.
b) I have set up a LLC. Of course I have to pay a lot of tax. If I want to have 100 dollars deposited to my account I have to charge my client 250 dollars. Still there are several benefits to having an LLC. It enables me to optimise how much I pay in tax, usually I can go from 60% tax to somewhere around 50%. I buy everything related to my business via the business. Conference trips, computers, headsets, screens, books. That way I can spend money "pre-tax", before I lose the 50% by paying it from the LLC as salary. Essentially I get those items for 50% off compared to if I had bought them with my own money. I can also get the VAT back.
When you have an LLC the contract between you and the client will actually be between the LLC and the client. That means you are not personally liable for any damages, for example if you get sick and can't deliver the client can't go after you personally. Also should you for some reason go bankrupt you are (typically) not personally liable.
Note that this is how it works in Sweden, but some of it might be applicable in Portugal.