How to calculate your overhead as self employed?

I’m trying to get a remote job, and Swiss companies being what they are about 100% remote work, it looks like I have way more chance to be working for a US company.

This means I’d have to invoice the US company for my services instead of being a Swiss employee.

I’m not very clear on the options and how much overhead there is. I need to know so that I can quote a yearly number that makes sense an to make sure I don’t end up being paid less than as an employee for a CH company.

Will I have to pay 20% into my second pillar (employer + employee parts)? Will I have to charge VAT? What about actual taxes, will it be on income as an individual or on profits as a company? What about 1st pillar contributions? Can I then choose which kanton my company pays taxes in (hello kanton Uri!) or will it be where I physically live? Does any of that have an impact on my residence permit (B)?

Ideally, I’d like to hear from someone currently earning money that way and how is it all setup.

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It depends on whether you start a sole proprietorship or an AG/GmbH.

For a sole proprietorship:

  • You have to pay ~11% of your income into pillar 1 (AHV/IV/EO/FAK). Your company needs to be registered at the SVA of your canton.
  • Pillar 2 is optional. If you want that, you have to find a pension fund that is wiling to take you (or go to ‘Auffangeinrichtung BVG’) and yes, you have to pay the full contributions and also all fees yourself. Anything above the BVG minimum depends on the terms of the chosen pension fund.
  • If you skip pillar 2, you can contribute more to pillar 3a instead where you can choose a provider such as Viac or finpension with higher return potential than BVG (obviously also higher risk). The maximum is 20% of your net AHV income or CHF 34’128 a year (whichever is lower). Also note that if you skip pillar 2 you won’t have any of the BVG insurance parts, however, you can take out a policy against relevant risks at a private insurer.
  • On the net profit of the company (pillars 1/2/3a and company expenses deducted) you pay your regular income taxes. No separate tax declaration for the company but you have to hand in your company balance sheet etc. If you work from your home, no other canton will be involved. If you work in an external office, your company can be registered at that place and I think this affects your taxes. However, I don’t know the details of inter-cantonal taxation in that case.
  • VAT: You bill foreign customers without VAT as there is an exception for exports. If all your income is from foreign customers, you don’t have to register for VAT (you’re required to register if your domestic revenue is CHF 100k or more a year). However, this would also mean that you won’t be reimbursed for VAT you pay for business expenses. If you don’t mind the extra accounting, a VAT registration can still make sense.
  • Accident insurance: You’re no longer covered by the UVG, which is mandatory for employees. You either have to get UVG for your company (e.g. at SUVA if they can accept you) or you have to tell your health insurance to include accident coverage and optionally get a private insurance to cover the risk of not being able to work (possibly long term) after an accident.
  • There is no unemployment insurance. If your contract is terminated and you can’t (immediately) find another customer, you essentially have to live from your savings. There is an exception if it happens shortly after starting the company and you decide to completely give up self-employment, if I remember correctly.

I’m not familiar with the US side of things. I don’t expect you having to register with or pay anything to the US gov/IRS, however, you never know with the US.

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I’ll give you a quick overview of how I addressed this on top of jay’s post.

Fist of all I was sounding out the market for about a month to see that becoming a freelancer was viable and after talking to some companies I decided to go for it.

The easiest way to start operating is to become a (*) sole trader company and for that you just need to make a request to the authorities.

I recommend you to have a look at this page: Becoming self-employed - www.ch.ch because most of your questions will be addressed there.

You don’t need to register in the chamber of commerce until your revenue goes above 100k CHF.

You don’t need either to apply for a VAT number if you’re not going to pass that threshold AND for customers in Switzerland (ie you can bill 200k CHF to clients in the USA for software services and you wouldn’t need VAT number)

Something you do need to do is to contact the authorities with what you think will be your annual revenue and they’ll send you some invoices to pay for the 1st pillar (AHV, DI, EO) in a quarterly way. To put an example in Vaud I do it with this link: Modification de l'estimation des cotisations personnelles (activité indépendante)

While there’s a way to register for the 2nd pillar, in practice it makes more sense to maximize your 3rd pillar.

Finally becoming a freelancer doesn’t have any consequence in your permit status (providing you’re B or C).

(*) this is the easiest structure but it has some disadvantages like having to respond with your own assets or not being taken seriously by large corporations.

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That’s basically what prevented me from going self-employed when I checked the option some time ago. In Switzerland, many companies tend to minimise their procurement efforts and as such they have a list of “preferred suppliers” from which they consume services. That’s usually the big consulting companies or some slave dealers, so you would have to sub-contract with them what automatically reduces your daily rate significantly.

It’s basically almost impossible to get onto that list and get a direct contract from large-/mid-sized companies as a sole proprietorship or 1 man LLC/PLC nowadays. Though it might work with smaller companies if you compete on price or if you are well established in the industry, people know you and you have a very good network that includes people on a certain level so they have enough power to overrule that paradigm. I don’t know how the situation currently is in this regard with US or generally foreign companies and would also be interested if someone could share their experience.

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I think you raised some important points to be taken into account by anybody interested in becoming a remote freelancer offering services (like software development).

Large established business like banks, insurers and so on won’t deal under normal circumstances with a company outside their approved provider list. It doesn’t really matter whether you’re a sole-trader or a SARL/ GmbH because you won’t be contracted directly.

If your target is to work for that kind of companies it makes IMHO no sense to become a freelancer unless you’re selling a product and not services.

SMEs are in principle ok with freelancers but tend to prefer to work with an incorporated entity (SARL/ GmbH) to avoid legal issues. That’s particularly the case in Switzerland.

My personal experience is that start-ups don’t really care whether you’re incorporated or not and that’s why I’d say I’ve worked for them up to a 90% of my time. I had some success with start-ups in the USA by using sites like https://angel.co and offering them some daily/ monthly rate.

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Just out of curiosity, were you applying for jobs directly there? even being a freelance guy/consultant/sole proprietorship company?

Yes, I was applying there with some success.

A vast majority of remote positions were (pre pandemic) in the USA and the main issue was more not being based there rather than being a freelancer. That even when work was to be carried out remotely.

In general if you have the right skill set I’ve found that start-ups are very flexible with the different contracting modalities.

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Thank you for your prompt answer Javier!

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