The future of work index measures a country’s tax and legal policies in the area of self-employment and cross-border service provision, in an increasingly borderless world. It ranks the attractiveness of tax and employment legislation for remote self-employed workers in a selection of countries, as well as potential exposure for incorrect contract classification.
It utilizes 78 different data points across five categories: legal provisions, administrative implications, tax burden, exposure, and immigration. Each category is divided into several subcategories.
It utilizes 78 different data points across five categories: legal provisions, administrative implications, tax burden, exposure, and immigration. Each category is divided into several subcategories.
In the first phase of the index, each country score is calculated relative to pre-set data points. Once enough countries are included under the index to capture a diverse dataset, the scoring system will be adjusted to reflect the relative score compared to the median and standard deviation of the dataset. Therefore, a score of 100 would not reflect the best possible legislation, but the best possible within the dataset utilized. In the first phase, each country’s score will represent the relative difference to the pre-set data points, while during the second phase, its score will be relative to the other countries included in the Index.
Index items
To create a full and comprehensive picture of the legislation of a country, we analyze the following aspects of the local legislation:
Self-employment as a legal category
the existence of a distinct legal category for self-employed individuals, including legal and tax registration requirements.
Regulation of remote and platform work
current regulations or legislative initiatives related to remote and platform-based work, both domestically and at the level of economic unions.
Cross-border service provision
the ability of self-employed individuals to legally provide services and invoice foreign entities.
Complexity of self-employment registration
ability and difficulty to register as self-employed, with considerations of documentation, physical presence, and language barriers.
Registration fees and paid services
costs related to registration and the availability of paid registration assistance.
Employer of record (EOR) regulations
regulations governing EOR models, risks of creating unintended employment relationships, fines or penalties for misuse, maximum allowable periods.
Misclassification risk
key criteria used by authorities to distinguish between employees and self-employed individuals, recent rulings, audit focus, and penalties for misclassification.
Taxation of self-employed individuals
tax rates, VAT applicability to cross-border services, comparison of tax burdens between employees and self-employed individuals, and penalties for non-compliance.
Permanent establishment (PE) risk
whether long-term service provision by a self-employed individual to a foreign entity can create a PE, and related risks compared to employment relationships.
Digital nomad visas
availability, costs, documentation requirements, income thresholds, and whether holders of such visas can or must register as self-employed.
Good faith and leniency in enforcement
as well as the possibility of obtaining non-binding or binding rulings on contractor classification.
Banking and foreign currency considerations
ease of opening bank accounts and receiving international payments in local accounts.
As employment and tax legislation are highly diverse, the crucial aspect when building the index was to define inputs that are strictly comparable across countries.
Calculating each country’s index score
Each item has a specific pre-set range of possible values, which are scored on a scale of 0 to X, where X represents the number of values for each item.
Some items have special functions:
Contingent items - they are activated only if their parent item has a specific value or a range of specific values. When their parent item does not have the specified value or values, they are replaced by the mean of other items in their subcategory, of other subcategories in their category or assigned specific values.
Items not relevant for some countries – if an item is not relevant to a specific country, its value is set to the mean of other items from its subcategory.
Dealbreakers – are items that set the value of certain items, certain subcategories, categories or country score to 0.
The value of each item is assigned based on the specific country legislation. Once the values are assigned, the resulting scores are calculated as follows:
Some items have special functions:
Subcategory scores are calculated as weighted averages of scores of items belonging to the subcategory. The exceptions are subcategories consisting of contingent items and those affected by dealbreakers. In their case, if items forming them are triggered, subcategory scores are weighted averages like scores of the rest of the subcategories. If they are not triggered, the subcategory is removed from the calculation. Subcategories affected by a dealbreaker item have their value set to 0 if the dealbreaker has the specified critical value. For calculating the weighted averages, each item is assigned a specific weight to be used in the calculation based on the overall relevance to the index.
Category scores are calculated as weighted averages of their subcategories’ scores. Each subcategory is assigned a specific weight to be used in this calculation. In calculating category scores, when scores of subcategories are not relevant (not applicable to a specific country), they are replaced with the mean of the sub-categories or the value of a non-contingent subcategory in the same category. If the category has a single subcategory, the subcategory score is also the category score. Final category scores are rescaled to 0-100 range. This is done by determining the minimum and the maximum score applicable to each category. Each score is then rescaled to 0-100 range, by:
- Subtracting the minimum score of the sample on that item from it,
- Dividing the results by the difference between the maximum and the minimum score of the sample on that item, and
- Multiplying the result with 100.
For calculating the country score, category scores from the previous step are assigned a specific weight and a weighted average of these scores is calculated.
Rescaling to the 0-100 range is done for easier inspection of values. These values are not used in further calculations.
Data source
The data is collected in collaboration with a big 4 company, using the information available under each country’s local regulations as of 2024.
Glossary
Self-employed
An individual who operates as a business owner, responsible for managing their own business activities and being responsible for the success of their activity and/or projects. A self-employed person manages their own income and expenses, issues invoices for their work and pays their own taxes. Self-employed people have the power to decide exactly what projects they work on, determine when and with whom they work, and dictate their own personal work styles. For the purpose of this study, we consider that from a legal point of view, self-employed people are organized as sole proprietors.
Remote worker
A person working remotely from their home or another location of their choice, who use technology to perform their work.
Digital nomad
Sub-category of remote workers who do not have a permanent office or home and work from different countries, towns or buildings using the internet. Digital Nomads can be employees, self-employed, freelancers or passive income earners.
Freelancer
We consider "freelancing" to be a sub-category of "self-employment", where freelancers work on short-term company projects, however these are performed under the company's supervision and direction.
Sole proprietorship
An unincorporated business run solely by one individual proprietor with no distinction between the business and the owner.
Platform work
Employment facilitated through online platforms or apps, connecting workers with tasks or projects offered by clients or businesses (e.g., Upwork).
Economic union
A group of countries that have established a common market, coordinating economic policies and often allowing the free movement of goods, services, and labor among member states.
Misclassification
When a worker is improperly categorized as an independent contractor (self-employed) based on indicators in the business and contractual relationship that they act as an employee. Misclassification can lead to potential legal and regulatory consequences.
Permanent establishment (PE)
A fixed place of business through which a foreign entity conducts its business activities in another country, potentially subjecting it to local taxation.
PE risk
Likelihood that a business's activities in a foreign country may lead to the creation of a Permanent Establishment and associated tax obligations.
Binding ruling
A formal decision by authorities that provides legal certainty on a specific matter, and individuals or entities are obliged to adhere to it.
Non-binding ruling
Informal opinion or guidance from authorities, clarifying tax or employment issues. A non-binding ruling is not legally enforceable by either party.
Statute of limitations
The maximum time allowance within which legal action, such as a misclassification claim, must be initiated.
Stop work order
Legal directive halting business operations, often issued as a penalty or consequence of regulatory non-compliance.
Immigration sponsorship bans
Restrictions or prohibitions on a company's ability to sponsor employment visas in the respective country.
Digital nomad-friendly
Location or country that actively supports and accommodates remote work and lifestyle preferences of digital nomads.
Paid registration services
Third-party services that individuals can use for a fee, to assist in the seld-employed registration process.
Tax audit
Examination by tax authorities to review an individual's or business's financial records and ensure compliance with tax laws.
Good faith leniency
Forgiving approach by authorities toward entities or individuals who demonstrate sincere intent and effort to comply with regulations.
Foreign entity
A company that does not have presence in your country.
Financial audit
Verification of a company's financial statements, transactions, and accounting records by an independent auditor to ensure accuracy, compliance with accounting standards, and the fair presentation of financial information.
Employer of record (EOR)
A third-party entity responsible for managing administrative tasks related to employment, such as payroll, taxes, and compliance, for workers employed by another organization (typically a foreign entity).
Insurance
A financial product that protects against specified risks, where individuals or organizations pay premiums to an insurer in exchange for potential financial compensation in case of covered events, such as accidents, illness, or property damage.
Benefits
Non-wage compensation provided by an employer to employees, which may include health insurance, retirement plans, paid time off, etc.
Perks
Additional incentives or advantages offered by employers to employees beyond their salary and standard benefits, such as gym memberships, flexible work hours, company-sponsored events, or discounts on products and services.