Remote companies tend to hire people from all over the world. This sounds like a great idea to reduce the costs of having an office, as well as have a more diverse workforce and also reduce labor costs.

How is it done in practice?

There are two ways: Contractor agreement or Employee agreement.

Most companies require that the people they hire set themselves up as self-employed contractors and they then bill the company once a month.

As you might expect, some countries are not very enthusiastic about such a setup, as technically speaking, the company should setup a branch in every country they will be hiring in. This is very cumbersome in practice, and that’s why the self-employed route is the most straightforward way to do it.

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If you operate a software business (such as WordPress plugins) or a SAAS, it is important to benchmark your operating profit with that of other similar businesses.

Before we start, it’s important to clear up some definitions:

Gross Margin – Revenue minus Cost of Goods Sold (or Cost of Sales)
Operating Margin – Gross Margin minus Sales, Marketing, General and Admin expenses
Net Margin – Operating Margin minus Interest & Taxes

I’m looking at operating margin % here.

You can take a look at some open metrics over at Baremetrics for a start.

I also asked several of my friends in business and there isn’t one clear answer. The most common percentage I could identify is around 80%, but it’s not always clear what margin they are referring to.

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I have been using Stripe as of recently as it’s finally available in many European countries. I’m really happy with this payment gateway, it’s much simpler and straightforward to set up than 2Checkout or PayPal, which are the systems I’ve used before the arrival of Stripe.

Now, Stripe also charges some fees for processing transactions, although again they are much more transparent and lower than PayPal’s.

You can also get €20,000 fee-free, which is what I’ve done. There is a little known offer that is available if you sign up for FoundersCard, which I would recommend signing up to anyway even if it’s not for this specific reason.

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I spent a good part of my twenties traveling around the world during what was the start of the digital nomad movement.

A recurring theme that I used to hear about was the possibility of optimizing taxes by being a digital nomad.

Just walk in any co-working space in South-East Asia, and a 20 y.o. white guy from the EU or Canada will swear that flying circles in Thailand, Bali, and Vietnam for all year means that nobody has the right to tax his income.

At the time I had decided to keep things simple by just paying tax in my home country where I had always paid as a self-employed person.

When I started to hear all the strategies others were using, however, I started to feel a bit stupid for not having optimized things. So I embarked on a journey to learn as much as possible about all the options available for legal tax optimization.

It turns out that the strategy I had opted was actually one of the safest ways to act as a digital nomad. The “clever” tactics many others were using were grey area legal schemes at best but mostly just plain old tax evasion that would most likely lead them into trouble later.

To this day, as the digital nomad revolution has grown, I still hear many of these strategies bandied around, so I thought I’d have a go at outlining how I think a digital nomad should pay his/her taxes.

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