Half the Donut: Why an entrepreneur earning $100k gets to keep over $99k in Singapore but under $57k in San Francisco

The donut of doom: Total earnings vs total tax in California

You’re about to quit your job and start living the life of a one-man entrepreneur. Living in your basement, you have no rent and no employees, and since you’re selling your skills you don’t need venture capita yet, but you’re still dreaming big. All things being equal, where should you base your business?

Tip: Probably not in the place where the taxman takes a red bite like this out of your income donut.

More specifically, in each of San Francisco, Helsinki, Sydney, Tokyo and Singapore, if your business earns $100,000 in net revenue and pays you a “ramen-profitable” $2000 monthly net salary:

  1. How much post-tax profit will your company make in a year?
  2. If all of this profit is paid out in dividends, how much does will you have left after taxes?

If you’re wondering why I picked those five cities, part of the reason is that it’s a nice geographical, cultural and political spread, but mostly it’s because I’ve either founded a company or worked for a company based in each of them.  The $100k net revenue/$2k net salary model, funding product development on the side, is basically what I modeled my one-man consulting company on back in 2006.

To jump straight to the answers, click here. If dividend imputation and municipal inhabitant taxes get you all tingly and excited, read on. Hardcore masochists who’d like to double-check my math are also invited to examine the gruesome innards of this Google Docs spreadsheet.


This is a hypothetical exercise, so I’m going to simplify as much as I can, the accounting is still stupidly complicated and there’s a whole lot of cramming square pegs into round holes going on.  In particular:

  • I ignore all non-financial considerations. Visas, availability of talent, infrastructure, economic prospects, legal and political environment etc are all important real-world factors for locating a business, but out of scope for today.
  • $100,000 is net revenue, we ignore all expenses aside from salary and tax. In other words, $100,000 is what’s left over after business registration, accounting, stationery and whatnot, and we also assume that those costs are the same across all countries.
  • We assume sales tax does not apply.  This is not as unfair as it seems, since most countries exempt companies until they reach fairly high yearly sales thresholds and exclude online and/or international/interstate sales.
  • The business has no tax deductible expenses. This is particularly unrealistic for the United States, where 72,500 pages of federal tax code means creative deductions are a national pastime, but them’s the breaks.
  • Pensions are accounted for on a defined contribution (what-you-pay-is-what-you-get) basis, so $1 put in now is worth (at least) $1 later. This is true for Singapore, Australia, US 401(k)/IRAs and some Japanese corporate plans;  this is manifestly not true for US Social Security or the national plans in Finland and Japan, but for lack of a better measure we assume it is anyway.
  • Taxes are computed assuming that pension and health insurance contributions are tax-free, which allows me to ignore the distinction between employer and employee contributions.
  • The owner is a full-fledged local resident under 40 for the purpose of tax, pension, insurance etc brackets.
  • For the sole purpose of minimizing futzing about with exchange rates, for income tax thresholds etc I’m going to merrily assume that 1 USD = 1 SGD = 1 AUD = 1 EUR = 100 JPY. This is obviously not correct, but is not all that much worse than picking actual exchange rates that’ll be out of date in moments anyway.

Last but not least, this is a work in progress, a revision history is at the bottom of the article.   Now, let’s roll up our sleeves, channel the spirit of the late great Herbert Kornfeld, and balance this shit wit’ a quickness.

Round 1: Paying a salary

$2000 x 12 = $24,000, leaving $76,000, right? Not so fast. There are four main things to worry about here: income tax, pension fund contributions, payroll taxes and health insurance. Both pensions and health insurance are tricky since our countries’ systems vary so widely, so we’ll just attempt to standardize the legislative minimum. And since all these fees are usually percentages of salary, we have to work our way backwards starting from desired post-tax income to get to the employer’s cost.

Golden Gate BridgeIn San Francisco, I’m going to cheat a bit and outsource the otherwise horribly complex income tax computation to the MIT Living Wage Survey, which figures that for a single adult, it takes pre-tax earnings of $26,692 to have $1,929/mo left over after tax, an effective tax rate of 13.28%.  Optimistically assumes that rate stays the same at $2,000/mo, we now need $27,675.  Next, we add in a 6% employee pension contribution with 6% employer matching (+$3203) and boost medical from $149/mo to a post-Obamacare estimate of $368/mo (+$2628).  On top of this, employers have to pay 6.2% of wages for Social Security, which I’ll lump as a “pension” for the purposes of this article; 1.45% for Medicare; 3.4% for CA unemployment, plus 1.2% and 0.1% of the first $7,000 only for federal unemployment and employment training tax respectively. (Huge props to ZenPayroll.)  In a rare bit of good news, SF’s payroll tax (1.5%) only applies once total salaries exceed $150,000, so we can ignore this.  We thus arrive at $36,773.

Ice, HelsinkiIn Helsinki, personal income tax is so complicated the only sane way to compute the effective rate is to punch numbers into the official tax calculator.  A gross income of €29,000 and zeroes for everything else, including being a godless pagan who avoids church tax, nets income of €23,978, for an effective rate of 17.32%.

As a >30% shareholder of his own company, our hero can apply the lower “YEL” pension employer contribution of 17.55% for two years.  On top of this, we have the employee side pension contribution of 5.15%, 2.04% mandatory health insurance, and 0.80% employer/0.60% employee unemployment insurance.  We thus arrive at €36,615, which is, rather incredibly, a hundred bucks less than SF, and this gets you a cradle-to-grave Scandinavian welfare state!

Expressways in Shinjuku, TokyoIn Tokyo, national income tax (shotokuzei) is 5% for the first Y1.95 million and 10% above, plus a flat 4% prefectural and 6% municipal tax (which combine to form jūminzei, resident tax), which works out to 16.6%.  For pension, you can pick the national plan (kokumin nenkin) at a fixed Y14,980/month regardless of income, or a standardized company pension (kōsei nenkin) at 17.120% split evenly between employer and employee; being cheapskates, we pick the national plan.  National health insurance is 80% of municipal and prefectural tax paid, which in Tokyo equates to 9.97% split between employer and employee. Phew!  (Dōmo arigatō to Japan Consult.)   Final damage 33,448 hectoyen, and I’m delighted to find out that I’m apparently the fifth person in the history of the Internet to use that lovably awkward term.

Sydney Opera HouseIn Sydney, the Tax Office says the first $18,200 of income are tax-free and the next bracket until $37k is 19%, for an effective rate of 5.36%.  The minimum pension (superannuation) contribution is 9.25% and Medicare (public health insurance) levy is 1.5%, and since our total income is under $84k, we’re not required to pay the Medicare levy surcharge for not having private insurance.  Payroll taxes in Australia are administered at the state level, but New South Wales only applies its rate of 5.45% once payroll exceeds $750,000, so that particular bullet is dodged, and at $28,087, the end result is easily the lowest of the bunch.

Shophouses in Katong, SingaporeIn Singapore, income tax is easy: 0% for the first $20k, 1.4% for the next $10k (usually 2%, but they’re discounting 30% in 2013), for a scarcely believable effective rate of 0.24%.  Mandatory pension (CPF) contributions for employees under 50, which include a health insurance component, are 16% for the employer and the 20% for the employee, with a maximum contribution of $1800/mo (not applicable here). The only other obligatory cost is the Skills Development Levy at 0.25% of salary, capped at $11.25/mo.  This equates to $32,777.

We can now compare the total cost of employment, ie. how much it costs the company to pay the owner that $2000/mo salary:

Employer cost vs take-home pay

But while taxes disappear into the gaping jaw of Leviathan, pensions are retained by the owner in some form of another (see Disclaimer), so a more instructive comparison deducts salary and pension from total cost to arrive at what I’m calling “employment overhead”:

Employment overhead

At the end of Round 1, Singapore is the clear winner ($117!) and Sydney a close second, followed by Helsinki and, at the back of the bus, Tokyo and San Francisco, where nearly $8k disappear in a puff of smoke.

Round 2: Corporate tax and dividend taxation

In our idealized mini-company, everything that was not paid out to the employee is pure profit. If the company wants to dish them out to its sole shareholder, how much do they get after the taxman takes his share?

Cable car, San FranciscoIn California, a C corporation pays 8.84% corporate tax.  (A pity we’re not in Nevada, where it would be zero.)  Pile on federal taxes at 15% to $50k and 25% to 75k, noting that you can deduct your state corporate tax first, and we get 23.7%. Since California treats dividend income as ordinary taxable income, in the $36k-to-87k tax bracket you’re looking at 25% to Uncle Sam, 12.3% to California, 3.8% to Medicare and 1.2% for “deduction phaseouts” (wat?), totaling a whopping 42.30%. Tot these up, and our entrepreneur is left with 44% of what the company earned, or $27,828.  And if that sounds bad, here’s a calculation that arrives at 26% when you max out both tax brackets!

That said, if you’re going to do this in real life and do not have ambitions to grow to be the next Google, you should almost certainly opt for an S corporation or an LLC instead.  These don’t pay corporate taxes: instead, they pass their income (or loss) onto their shareholders, who then pay normal income taxes.  This is good if you’re keeping the money, but terrible if you were planning to reinvest it.  However, since all other corporation types in this little survey are “real” companies that can choose to reinvest or issue dividends, I felt that a C corporation is a fairer comparison point.

Geese in Hietaniemi Bay, HelsinkiIn Helsinki, both corporate tax and the tax treatment of dividends was revamped in 2013.  From January 2014 onwards, corporate tax is 20%, leaving €63,385 in post-tax profits.  The basic capital gains tax on dividends is 30% (but 32% above €40k), with a tax break of 75% on the first 8% of “free capital”, which for our newborn company equates to the total yearly profit.  This works out to an effective rate of 28.59%, leaving €36,211 in our hero’s bank account.

Cherry blossoms in Korakuen Garden, TokyoIn Tokyo, corporate taxation makes Japanese payroll and income taxes look simple.  Based on this handy summary from JETRO, for “a small company in Tokyo”, corporate tax is 15%, “restoration corporate surtax” (read: Fukushima surcharge) is 1.5%, prefectural and municipal “inhabitant taxes” in Tokyo are 0.75% and 1.85% respectively, “enterprise tax” is 2.70% (I presume this is meant to discourage entrepreneurship?) and as a cherry on top “special local corporate tax” is 2.19%, for a total of 23.99% but an effective rate of 22.86% for reasons I won’t even claim to understand. But wait! Once your earnings top Y4m, new rates apply and you now get socked for 24.56%.  In effect, the effectively effective rate is an ineffective 23.54%.

So that’s taxes, now dividends, which are even more like tentacle porn. To quote Japan Tax, “As so often seems the case with Japanese individual taxation, what would be expected to be a simple tax matter is made overly complicated by a range of expiring tax benefits (that are often revised or extended) and a range of alternative obscure reporting elections, deductions or exemptions.” The short of it is that the withholding tax rate for unlisted shares is 20%. The long of it is that you can then choose to report or not report it as ordinary income. If you do report, you have to pay income tax, but receive a dividend deduction of 12.8% for overall income of Y10m or less but 6.4% above which offsets the withholding tax and, you know what, fuggedaboudit. Pay 20%, end of story, and keep 40,709 hectoyen.

Sydney Monorail on Darling BridgeIn Sydney, company tax is a flat 30%, no if ands or buts, and the highest rate in our survey.  Dividend income is treated the same as ordinary income and taxed at same rate, except that thanks to dividend imputation you get “franking benefits” that are meant to offset the corporate tax already paid.  Acting on the optimistic assumption that they do, this means all that’s left is the difference between the corporate tax rate and the receiver’s marginal income tax rate, in our case 32.5% (for the $37k+ tax bracket) plus 1.5% levy, or 4%.  This leaves a rather juicy $48,326.

Singapore city at duskIn Singapore, corporate tax is usually 15%, but new companies in many sectors including IT pay zero (0%) tax for the first three years for their first $100k in profit, no special applications needed.  There’s also a whole slew of other tax incentives, including 4x deductions of IT gear and, most incredibly, cash transfers of up to $5,000/year from the tax man for companies that make a loss despite earning over $100,000 in revenue, but that’s another story and our rules exclude this kind of thing anyway.

Singapore has no capital gains tax, so Singapore company dividends are also tax-free. The company can thus pay out $67,223 in dividends, and the shareholder gets every last cent. This means our entrepreneur’s yearly earnings after tax are $91,223, and adding in the $8,640 sitting in their pension fund, they have managed to hold on to $99,883 of it.

Company profit vs dividends after tax

Dear reader, if you made it this far, I salute you. Now all that’s left is to sum up your salary, your pension and what’s left of your dividends to see how much of your $100,000 you still have left over.


Total left over from $100k

Singapore romps home as the undisputed winner, with the entrepreneur keeping a scarcely credible 99.9% of what they started with. It’s just a real shame that, for political reasons, the government has recently gutted the EntrePass scheme and thus made it close to impossible for a foreign one-man entrepreneur to set up shop.  (If you’re keen anyway, check out the Singapore Expats “Business in Singapore” forum or drop me a line.)

Somewhat to my own surprise, Sydney rocks up in second place with 74.6% left over.  Australia’s not what you’d call a low-tax (much less low-cost) country, but income tax is highly progressive and the dividend franking system means you only pay tax once on dividends, meaning that at low incomes you get to keep most of what you earn.  The calculus would change pretty rapidly if you earned $200k and found yourself in the 45% income tax bracket.

Helsinki and Tokyo show up neck and neck in 3rd and 4th place, with 66.8% and 66.5% respectively. Both have heavy taxation of income, payroll, corporate profit and dividends, but no total clangers. (Except Finland’s 24% value-added tax, the exclusion of which makes Helsinki unrealistically rosy, unless you can source all your income from outside the EU.)  The canny entrepreneur could nudge up both of those figures: in Tokyo, you’d actually want to pay yourself more salary since income tax is lower than corporate tax, while in Helsinki the reverse applies.

And trailing the pack with barely half left over is poor old San Francisco with 56.9%.  Now obviously there’s more to deciding where a company sets up than taxes, because otherwise Silicon Valley would be empty… but unless you really need to be there, from a financial point of view setting up pretty much anywhere else seems to make a whole lot more dollars and cents.


Thanks to corporate law ninja Joe & serial entrepreneur Juha for a sanity check of the US, Finland and Japan calculations, Tuomas Talola for corrections to Finnish calculations, and my Singaporean accountant, the infatigable Ms Tan, for clueing me onto this stuff back in the day.  If you spot any mistakes, drop me a line.

Incidentally, Joe says that a fairer version of this exercise would model the corporate and personal taxes of each country and then solve for the optimal combination of salary and dividends.  Any takers?

Revision history

31 Oct 2013

  • Recomputed Finnish income taxes with tax office calculator.
  • Adjusted Finnish employer pension to use YEL rate instead of TyEL rate.
  • Corrected Japanese pension to pay national pension (kokumin nenkin) only.

Notarizing your fingerprints for fun and profit

Today’s post has nothing to do with travel technology, so click here if that’s what you came here for.  On the other hand, if you’d like a heartwarming tale of triumph over Kafkaesque bureaucracy, or a step-by-step guide to bypassing obstructionist police departments in your quest for the fingerprints needed for a Singaporean Certificate of Clearance, read on.

For the past half year, I’ve been immersed in the soggy bucket of fun known as an application for permanent residence in Australia.  Now, I like to think of myself as somewhat of a connoisseur of obscure immigration bureaucracy, my passports being littered with Saudi work permits, Indonesian multiple-entry business visas and Japanese trainee landing permits, but nothing I’ve seen yet comes close to the sheer bulk and complexity of the Employer Nominated Sponsorship (Subclass 856), recently renamed ENS 186 just to keep us pesky migrants on our toes.  The checklist for what to include alone runs to five pages.  By the time we finally lodged our application in May, it had grown to a wodge of 74 pages, and that was just our half, with my employer (thanks Lonely Planet!) submitting another lot of the same size.

Perhaps the most pointless hoop to jump through was proof that I possess a “vocational ability” in the English language; in other words, that my English is good enough to work in Australia.   Now, given that the ENS 856 is an employer-sponsored visa, you’d think the letter from my employer confirming that they’ve tolerated my antics for over two years and are willing to try to put up with them for another three would suffice, but no cigar: for the Descartesian philosophers at the Department of Immigration & Citizenship (DIAC), it’s not enough to possess practical ability, I have to demonstrate it in theory as well.  Moving to the United States at the age of 8 months?  Completing the entirety of my education, including a master’s thesis, in English?  Nope, nyet, nein: I could either get a combined score of over 5.0 “Modest User” on the IELTS or go pound sand.  So I forked out several hundred smackaroos, prepared yet another stack of paperwork (fun fact: IELTS photos are identical to Aussie photo guidelines, except that glasses are not allowed), spent two days to apply for and complete the test, and eventually received my results: 9.0 “Expert User”, the maximum score.  I can only presume somebody somewhere is getting a juicy kickback from all this.

But like the boss in an old console game, the toughest obstacle of all awaited at the end of the grueling journey.  The application requires submitting criminal record checks for all countries you’ve lived in the past ten years, and while Australia, Japan and Finland proved no great problem, for Singapore this requires a Certificate of Clearance (COC).  As 99% of people requesting this are Singaporeans wishing to leave the ordered shores of the Little Red Dot for good, you are only permitted to request this once in possession of a “document from relevant consulate/immigration authority/government bodies to establish that the certificate is required by such authority“, and the form goes to great lengths to ask why you wish to commit this near-treasonous act.

And if you’re in the 1% who are not Singaporean?  Tough luck: since October 2010, the Garmen decided to score political points and stop cuddling non-citizen scum, so no COC for you.  However, in their grandmotherly kindness the Criminal Investigation Department has instituted an appeals process, allowing non-citizens to rend their garments, sprinkle ashes on the head and wail for “exceptional, case-by-case basis” permission to apply for a COC — and fill out another form, of course.

Now, filling out a form or two is no great shakes, Lord knows we’ve had plenty of practice recently.  However, there are two other requirements: the first, “a bank draft made payable to ‘Head Criminal Records CID ’ through a Singapore-based bank“, and the second, a full set of fingerprints.

For the bank draft, the usual approach is to waltz over to the HSBC and OCBC offices in Melbourne and try to convince them into write you an international bank draft for 50 Sing dollars at some stupid markup.  (Apparently HSBC will do it for A$18 if you have an account with them.)  Being a lazy cheapskate in possession of a Singaporean bank account, though, I worked out another way: order a free DBS iB Cheque online, mailed to Head Criminal Records CID, c/o My Buddy in Singapore and forwarded by him to Australia.  There’s only one catch: the cheque is valid for precisely one month, so you need to make sure everything else is lined up…  including those fingerprints.

Now, in most sane countries, getting a set of prints done would involving rocking up to the nearest cop shop with a box of donuts in hand and walking out 15 minutes later wiping ink off your grubby fingers.  Unfortunately, this is a former part of the British Empire we’re talking about, and Australia has inherited the colonial bureaucracy with gusto, but unlike still triplicate-filing India it’s all been upgraded to high-tech bureaucracy.  Here in the great state of Her Majesty Victoria, Defender of the Faith, the police scan and store fingerprints electronically, no ink needed or allowed, which means that unless you’re on really good terms with the local constabulary, they can’t do squat.  (As it happens, Singapore also does its fingerprints electronically, but getting their machines to talk directly to Victoria’s machines would obviously be pure crazy talk.)  For dealing with the rest of the world, there is a central Fingerprinting Service in Melbourne that can take your prints the old way, so one sunny morning in April I called them up and asked for the next available slot — which would be in October.

Yes, October.  That’s a six month wait to get somebody to press your fingers first onto an ink pad, and then onto a sheet of paper.  Why?  According to the Department of Immigration, apparently mostly because the police want more money, and have thus been on strike since September 2011.  Until recently, you could short-circuit this by taking a trip upcountry to Wangaratta or Whoop Whoop, where waiting times are more like two weeks, but apparently Vic Police got wind of this and now require proof of residence.

Looking for an alternative?  There’s precisely one, namely the Australian Federal Police, who unlike the locals charge $145 a pop for the privilege — and still have queues out the door, with the next slot in September, a mere 5 months away.

Not being the kind of guy who takes “no” for an answer, I considered a few ways to shortcut this.  The obvious one would be to lie, book a slot outside Melbourne and fake proof of residence (a referee statement would be easy enough), but lying to the police is in general bad juju.  Camping at the fingerprinting centre, hoping to snag the slot of a no-show would be another option, but you might be in for a long wait and they certainly don’t seem too cooperative over there.  And then there are some companies that do stuff like forensic fingerprinting, but this seems a bit beyond their remit.

But then I heard about getting a set of fingerprints notarized, and I decided to give Frank Guastalegname of Caleandro, Guastalegname & Co in Footscray a ring.  Now, the COC requirements state that the prints must be “taken by a qualified Fingerprint Officer at a Police Station or an authorized office of the country he/she is now residing“, and a public notary is not going to take your fingerprints for you; however, Frank was more than happy to witness us fingerprint ourselves.  So we printed out a bunch of FBI Form FD-358s, brought them along our passports, and self-fingerprinted away.  With no practice beforehand, the prints came out pretty sloppy, so I would suggest training a bit beforehand: here’s a handy video on Youtube.  Frank then stapled the fingerprint sheet to a grand declaration confirming that he had personally witnessed our identity documents and fingerprints, and then signed, stamped and sealed the hell out of the result.  (I’m kicking myself for not scanning a copy for posterity, it was a sight to behold.)  Total cost for the two of us?  $60.  Whoo!

So here’s what we sent for the application and appeal, with props to PMD:

1. Application for COC (PDF)
2. Appeal for COC request (PDF)
3. iB cheque for S$100 (for two of us)
4. Notarized fingerprints
5. DIAC information request letter (DIAC has a template for this and will provide a copy on request)
6. Two passport photos
7. Copies of passport, including front page and stamps showing first arrival in Singapore, Employment Pass in Singapore plus departure from Singapore
8. Employment letter(s) while working in Singapore

We initially sent 1 through 6 plus copies of current passports, but they do insist on 7 and 8 as well and sent an e-mail asking for scans, since apparently the police computers don’t talk to the immigration computers.  They also understand that PRs don’t get stamps and modern EPs don’t even go in your passport.  So don’t worry too much if you’re not quite sure what you need to send, they’ll let you know if you missed something.

Just under a month after they received our application, Singapore finally gave the thumbs-up and mailed out the certificates on June 19 by registered mail.  Singapore being Singapore, the confirmation included a SingPost tracking number, which duly told us the letter had been shipped off to Kangarooland — and that’s where the trail ended.

It usually takes about one week for mail to get from Singapore to Australia, but that “usually” is dependent on the tender mercies of Australia Post, an organization with all the efficiency and panache you’d expect from a government-owned corporation with a monopoly.  Whenever our mail doesn’t show up and we go complain, the local office blames our crack-addled local delivery guy, who does indeed have a demonstrable habit of delivering our mail to somebody else or somebody else’s mail to us on a weekly basis, and also likes to leave us cards saying a package (with no indication of sender, contents or any tracking ID) is at post office A when it’s actually at post office B.  But I’m pretty sure it’s somebody else along the chain who screwed the mail pouch when a letter takes over a month to actually show up, and on occasion they simply disappears into the ether.

We chewed on what remained of our frayed fingernails and waited, with the occasional ping to Immigration for updates.  On July 27th, a good six weeks later, they emailed to say that they hadn’t gotten the COC yet, so could we have Singapore mail out another one?  I sent another email to the CID, with a CC directly to our DIAC case officer, and lo and behold: she took another look, found the certificate hiding under a snowdrift of paperwork, and half an hour later, we were Permanent Residents!

And that’s how a “skilled migrant” from a 1st world country with a supportive employer won his family’s right to stay in Australia.  Spare a thought for the bewildered refugee with no support, who speaks English as his third language, and has to battle not only with DIAC’s impenetrable but basically fair bureaucracy, but with a venal and corrupt administration (or lack thereof) in his home country as well.  Anybody want to try their luck getting a police certificate from Eritrea or the Democratic Republic of Congo?