How to pay overseas workers and how to receive the paycheck? When big companies hire abroad, they tend to have local subsidiaries in the country and hire people as employees. But most companies hire people in other countries as contractors or freelancers.
(Bloomberg Línea explores the new avenues for Latinx to get new IT jobs, mostly working from their hometown. So, probably no relocation and maybe not many perks, but with the added value of competitive salaries to spend locally.)
Read Part 1 here: Foreign Companies Want Latinx in Tech. This is The Aftermath
“They are full-time team members, get vacation time, sometimes they even get extra money for health insurance, but legally speaking they are hired as contractors,” explains Alexander Torrenegra, a Colombian-American entrepreneur and investor that wrote “Remoter: the why-and-how guide to building successful remote teams”.
Payments company Deel says the advancement of cryptocurrencies is a reality, and the main benefit when making payments of this type is having this counterpart with employees.
Through a partnership with Coinbase, Deel offers this possibility to service providers who receive payments via the fintech and it gives them the freedom of choice so that they choose what makes the most sense for them.
“Our goal is to offer multiple choices for our base. We were not able to get into the merits of disadvantages or risks, as this responsibility is concentrated on our partner.”
According to Deel’s report, Latin America leads the ranking of professionals who request part of their salaries in cryptocurrencies (52%), with Argentina, Nigeria, and Brazil being the countries that most drive the numbers.
Deel recently launched the crypto global payroll option for companies. Previously, on the platform, contractors could withdraw a percentage of their salaries in cryptocurrencies, but from now on companies can also add this USDC payroll option to pay employees.
“We chose USDC because it is less volatile and is a currency pegged to the dollar. We think it’s another step towards making cryptocurrency more popular and a great way for employers to attract talent,” says the payments’ unicorn.
Deel has already passed over $1 billion in payments. Between July and December 2021, the volume of active contractors in Brazil grew by 241%.
“Latin countries have qualified and cheaper labor, which is why managers of European and North American companies are directing many opportunities to this region, especially when it comes to technology,” says Deel. According to the data survey carried out by Deel, the hiring of professionals from Latin America by other countries increased by almost 300% in the last half of 2021.
According to Deel, there is tax and legal complexity in international contracts and payments. Deel says it has over 200 lawyers around the world to ensure there are no legal issues with payroll payments.
“We automate the entire payment process, eliminating much of the bureaucracy involved in the process. There are several taxes for payments between countries to be made, such as SWIFT and IOF (Brazilian financial operations tax), but companies that contract internationally do not see this point as a problem, as they see this movement as an investment.”
Especially for Brazil, Deel has a local invoicing mechanism that allows Brazilians to pay invoices in local currency, which the firm says generates savings of up to 50% in national companies’ expenses.
The Estonia story
Depending on the country, employees get out of the money of the salary in the bank accounts locally or only a portion and keep the rest of the money on the cloud such as in cryptocurrencies, so they don’t need to have to bring out the money locally and pay taxes.
Others are opening companies in places like Estonia that allow electronic residence. That means that they get paid in Estonia, and then pay themselves in the country where they live. “This was just invented”, says Torrenegra.
Estonia was an independent country and then World War II came between Russia and Germany. Estonia was occupied by Russia in the Soviet Union. The Soviet Union was a big federation, and Estonia, back then in the 60s had a special position in cybernetics. It handled the whole Soviet Union cybernetics unit.
In the early days, the history of researching computing before the internet started in cybernetics, and it started in Estonia already at the beginning of the ‘60s, according to the Head of the e-residency program in Estonia, Katrin Vaga, in an interview with Bloomberg Línea. “You can say that we do have some history in this kind of tech education before the World Wide Web was born, before Google, before everything boomed.”
When Estonia gained independence in 1991, it happened peacefully, as the Soviet Union collapsed. “But in Europe, we are really a micro country, we have a very long history, we have our own unique language, our own unique culture, so we have a very strong identity, but it’s 1.3 million people,” says Vaga. That’s why the country is making efforts towards the e-residency program, especially in Latin America. Last year, in May, Brazil ranked 30th among the more than 170 countries that most applications for the Estonian program, and, in just over 6 months, it has already climbed two positions in the ranking. Currently, there are 900 Brazilians and more than 200 companies created by Brazilians in the startup ecosystem of Estonia.
Last year, a new pick-up point to deliver the e-residency card was opened in São Paulo. It’s the only point available in Latin America so far, but Estonia wants to scale that to the region.
The electronic residency program was born in 2014. “Everyone in Estonia was using mobiles to do everything, with the digital ID. But we are a small country and we need foreign investors and we need banks, telecommunications companies. We didn’t have the digital ID for foreigners that were living in Estonia, and initially, e-residency was making digital ID infrastructure available for people from outside,” explained Vaga.
But, organically, Brazilians started to apply to the e-residency online, like a snowball effect, the program started to reach not only businessmen that were already living in Estonia. “People were like, ‘I’m an Estonian citizen and I have never visited the country. I would like to come and maybe establish a company in Estonia because Estonia is in the European Union’,” she says.
According to her, the vision of E-residency today is to make entrepreneurship accessible, easy, and bureaucracy-free. “We provide this gateway to the European Union market. Our digital IDs have very high-security standards in the EU, and are very secure.”
The e-residency is a benefit from Estonia’s government in which foreigners can build a company, and there are no obligations. “It’s more like empowering entrepreneurs from the world to create and run your business completely location-free. It doesn’t matter where you are physical. Estonia’s business services allow them to do it from Australia, Brazil. You don’t have to come to Estonia.”
For Estonia, it is a lot about soft power. “If you are a really small country with a small voice, this helps us to matter more in the world. It helps us to be bigger. Because e-residency in a way it’s a diaspora of people who are fans of Estonia. For a country that has a low birth rate, very small population, it is a big value.”
The country says it is growing its startup and tech ecosystem with that, and it needs tech-talented people with fresh ideas. “E-residency, startup visa, these all are programs that are attracting foreign talent. We are not attracting people to clean the houses, we’re attracting the brains for innovation, technology, to make our economy bigger and stronger.”
30% of Estonia’s startups are created by e-residents, and 20% of all the new companies in Estonia per year are created by e-residents. “It is not that taxes are lower, it depends on your company profile as well. If your company is in Estonia but your clients are in Brazil, you still have to pay taxes in Brazil. There are international rules for that, e-residency doesn’t mean tax residency,” she explains.
To build Estonia’s own country with parliament members, public offices is a big task for a country with a population that is smaller than Brazil’s city of Guarulhos alone. One of the reasons why Estonia chose to pursue the digital path was that it didn’t have any oil, gas, or commodities. The young leaders, at the same time, we’re looking for a sustainable and smart way to build the country.
Estonia skipped to a modern country. “In banking in Estonia, I never had a checkbook”, says Vaga. “We jumped over certain manual services, we established them immediately digital. We took this decision very early, that the internet is something that should be available for everybody for free. Digital possibilities should be available for students.”
Estonia made educational efforts to launch computers to the public. First, banks came to Estonia and started to establish private services online. Estonia had fintechs before fintech was even jargon. “It was easy to make international payments.”
The country’s security infrastructure is Blockchain-based. Estonia built public services on top of that, identity documents, an e-tax, and people could do taxations completely online. All state services are currently digital, except for marriage and divorce.
The public and private sectors are working together to create an ecosystem welcoming foreign talent. Encouraging innovation, according to Vaga. Developers from Estonia built Skype, and the country also made Wise, the remittances unicorn. “Wise was born because the founder of Wise was the first employee of Skype, it’s a startup ecosystem.”
While countries like Estonia believe this type of approach can also bring money to the country while working remotely, others say companies and employees have to pay taxes on their global income.
“It’s going to be almost impossible to block hiring overseas. You can always create a subsidiary and that subsidiary can hire people remotely. It’s nonsense legislation in some places to try to protect remote local workers that are not visualizing the consequences of allowing companies to be competitive by being able to hire globally,” says Torrenegra.
“Most people open a company anywhere. The fact that I live in the US doesn’t mean that I have to open a company in the US, I can open one in Estonia. If you live in Brazil, sometimes it is easier to open a company in Cayman Island than opening locally which has regulations about hiring remote talent. Everything is very new and politicians are way behind catching up with trends.”