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I was wondering why companies from USA are are searching for remote developers from USA, even if the working contract is a W2? (I've seen that many companies have a requirement that the developer should be from USA, even if the role is 100% remote) Do they have some tax advantages if they are working with self employed developers from USA over the ones from Europe?

Also, if a developer who is self employed and has his "company" registered in a country with small taxes, but he works for an USA company, does him needs to pay taxes in both countries or only in the one where is registered?

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2 Answers 2

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Suppose you're a US company and you want to hire a guy in Palombia to do coding for you.

You may try to structure the deal such that -- according to the American law you're used to -- it is just you buying a service from a foreign one-man business. However, Palombian law may not agree with that.

For all you know, hiring the guy may well make you a Palombian employer in the view of Palombian courts. And the opinion of those courts is what counts if the guy sues you for holiday pay, or sick pay, or severance, or mandatory cost-of-living raises, or demands to be re-hired with triple back pay a year after you lay him off in a way that turns out to be illegal in Palombia. There's no telling which strange (to you) laws they may have there!

Most probably you can't get out of that just by writing in your contract that no such things will apply, or by a choice-of-law provision saying that California law will govern. If Palombia is like most countries, their labor laws take precedence over private contracts.

What's more, being a Palombian employer most probably means that you're legally required to withhold income tax from what you pay the guy, and remit that to the Palombian government. To do this you need to integrate with their IT systems. Or contract with a Palombian payroll processing company to do it for you. Perhaps you'll need to post a bond to secure the tax withholdings; stranger things have happened. And there may be all kinds of mandatory social contributions other than tax you need to pay, which according to Palombian law are in addition to the salary you agreed on, so you can not even deduct it there. Did you remember to register for the Palombian Employers Bankruptcy Guarantee Fund?

All of this may or may not be as bad in practice. But you never know until you pay someone to research it for you. Don't take the guy's word for it. He just wants a job, and he may not even be aware that the Palombian Employers Bankruptcy Guarantee Fund exists anyway. That won't help you when you're hit with a $20,000 fine for not contributing to it.

So you're looking at some unknown sum you'll need to pay some Palombian employment lawyer just to get up to speed on whether there'll be any hidden costs or risks in hiring the guy or not.

If you can hire someone just as good in a jurisdiction where you already know how to employ people, that's much cheaper and safer.

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  • The answer makes ZERO sense. See, all it would mean is that the US company would INSIST On the Polombian guy being actually employed through one of the tons of international umbrella companies that deals with all that. The real reason are one of the following: Prejudice, Security and legal clearances, privacy laws at times, LANGUAGE (most Palombians have a very basic understanding of english), Culture (Palombians always say yes they can do anything) and.... TIMEZONE (Palombians are not working at the same time as Americans making meetings hard).
    – TomTom
    Commented Nov 21, 2022 at 12:48
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I've been asking this question hundreds of times to US companies. I got many different answers, here are some of them:

  • Want US based employees (convenience & peace of mind)
  • State laws: California has strict policies to combat offshore long-term contractors/consultants.
  • US visa required due to government contracts.
  • Special clearance due to sensitivity of the work.
  • Healthcare industry: HIPAA states only US-based resources allowed.

In other cases, they still prefer having employees instead of contractors on paper, which still make little sense to me. The contractors do not need any legal benefits, insurance, yada yada. All they want is to get paid monthly for services rendered. Which is cheaper and more convenient than employees.

I've been lucky a few times myself having found and worked with US companies long term as a contractor, and continue doing so. Because the US visa situation is potato.

PS: Any US employers reading this, you can use deel.com to do payroll and more for your remote workforce.

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  • Perhaps employees are seen as company assets / intellectual resources, whilst contractors are not. Which may be important when it comes to valuating companies? Commented Nov 24, 2022 at 21:25

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