Is it legal to pay employees or contractors in bitcoin (artificial e-currency)?
I am from central Europe, and there is really HUGE taxation (about 0,44 on wages, 0,2 on goods, so about 55pct goes to taxation black hole).
I got idea - is it useful scenario to pay my employees by some alternative e-currency?
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"Central Europe" isn't a country. Each of the EU countries has local employment laws. – Dnbrv 12 years ago
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Sounds highly unlikely that this idea is above board. But +1 for an interesting idea – Adjam 12 years ago
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@TimJ bitcoins are fairly easily exchangeable for other currencies (see eg. Intersango). So it's more like being paid in some obscure foreign currency than in monopoly money -- an unnecessary complication, and certainly (as Nick Stevens answered) very unlikely to be helpful taxwise, but not completely valueless either. – Giles Thomas 12 years ago
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@TimJ -- interesting -- so if I offered you either 100BTC or $10, you'd take the dollars? – Giles Thomas 12 years ago
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@TimJ - I have to admire your consistency, at least! But in the real world, if I gave you 100 bitcoins (apologies for the abbreviation in the last comment) then you could convert it to an entirely untheoretical $450 with relatively little effort. For me, Bitcoin's volatility and the slight inconvenience of converting them into something one can use day-to-day make them something I'd charge a significant premium to accept for payment, but no more so than, say, Thai Baht. Possibly less. At the end of the day, it all turns into money in my bank account. – Giles Thomas 12 years ago
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@TimJ -- you're probably right (though the armchair libertarian in me balks at the idea of an inherent value in any fiat currency ;-). But that's a great argument for not holding bitcoins long-term, but a less good one for not accepting them and then flipping them to something more stable. Again, I'd compare them to one of the weaker national currencies -- after all, there's no inherent value to them beyond the portion of the world economy transacted in them. I'd rather receive payment in bitcoins than in, say, Zimbabwean Dollars. – Giles Thomas 12 years ago
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I think a good analogy would be paying someone in a foreign currency. If I am living in Israel but getting paid in say UK Pounds I still need to pay my taxes on that income. (And I would expect that it might make some interesting paperwork headaches for my accountant) – Zachary K 12 years ago
3 Answers
Unless your local laws are very badly written, the type of currency you use to pay your employees won't make any difference to their tax liability.
Besides, unless your employees can pay their rent with Bitcoin (or whatever), you might find they're not as willing as you believe.
Actually you run into two issues.
No, most likely it is not legal. This is not so much about free contracts as it is totally about protecting non-business people from screwed business people. I.ee. WORK contracts often HAVE to be written in the local currency.
Contrtactors are something else. Those run a business and an exchange of goods is likely accepted.
THAT SAID: You seem to be ignorant on running a business. You have to pay taxes on value of goods exchanged. The government does not care if your income is computers, euro or bitcoin - the value is what is taxed. If ou sell me a servie that is worth 1000 bitcoin, you have to better put that into your books with the current euro value. And no, you can not hide - you have to send me paperwork, invoices etc. - no way to just put them on an anonomyous address easily. Also, there is not only taxation, there also is solcial security - want to betray your workers on what is their due?
Did you think that through? Your income is your income. How you think you can declare the expenses for buying the bitcoin without declaring the income on the employes? You think you can run a startup totally with fraud at the core, not ever being tax checked? How you going to explain the government official running through your books what you did?
Hint: Your startup turns into Jail-Up. Pretty much on first tax check.
Plus the other side is tha t bitcoin are not legal tender - so they are useless for the employees. I like Bitcoin, but I can not pay my rent with them, my internet, my car, my food.
Using bitcoins is fine, so long as you pay your taxes From the outset let me make it clear that I am not a lawyer (IANAL), however some research has brought up the following that may be of interest.
According to this article on contracts one of the four elements required to make it legally binding is:
"Exchange: This is one of the very basic elements of a contract. EachThis seems to imply that an employee can be paid outside of legal tender (perhaps in return for access to services that the company provides). There are accounts of employees being paid in gold coins in the US, which were intended to exploit a loophole allowing for reduced tax payments. The IRS took issue with the perceived tax evasion rather than the payment mechanism.
of the parties must bring to the table some form of product, service
or legal tender to have a mutual exchange. This means that a contract
can involve any of these exchanges. Employment contracts involve a
business exchanging a salary and benefits for the work services of a
new employee. Sales contracts involve the exchange of goods for the
promise of payment from a customer. In most cases, contracts are only
enforceable after one of the parties has fulfilled his share of the
exchange. For instance, the new employee mentioned above would have a
difficult time suing his employer for not paying him if he failed to
show up for work."
So in the case of payment in bitcoins, I would suggest that you should definitely not use them as a loophole to avoid paying taxes. However, if your employees are willing to accept them, and you report how much you paid them in your local currency so that an accurate tax return and payment can be made, then I see no reason why you cannot use them.
The use of bitcoins would definitely be beneficial if your business required paying your employees internationally since it would allow you to reduce international money transfer fees.
