Not so long ago, earning in dollars and working directly for a foreign company was uncommon. Today, at least in the technology sector, it is something that has gained popularity. Here's what it's like to earn in dollars and spend in pesos.
In this article I share my personal experience and some advice for those who are contemplating accepting an offer to earn in dollars. And I clarify:
- applies if you earn in dollars or a currency stronger than that of your country.
- applies if you spend in pesos or a currency less strong than your income.
- a foreign company, in this article, refers to a company or corporation that does not have a legal presence in your country.
Why are there more options to work and earn in dollars?
Several factors have influenced the increase of people who work directly for foreign companies, and who earn in dollars, but spend in pesos (bolivars, soles, or lempiras, for that matter). Among these factors we can highlight:
- the massification of high-speed Internet services in Latin America
- the explosion of technology-based financial solutions that enable the simple electronic movement of money between people on a global scale
- cryptocurrencies and of course,
- remote work models - teleworking or hybrid work
Earning in dollars: When is it a good idea?
For Latin Americans - and for the world - the U.S. dollar (USD) is a benchmark. The US dollar is the official currency of the world's leading economy. In most of the world, it is the currency of international business. The euro is also a major currency of international transactions, but even today, the dollar is the main benchmark. There is not much to explain, if the dollar is a stronger and more stable currency than the local one, earning in dollars can be a great idea.
However, earning money in a non-local currency exposes you, for example, to fluctuations in the foreign exchange market. Although for our time, historically it would be a good idea, keep in mind that this does not guarantee that it will always be the same. An economic crisis, a war or a pandemic can affect the economic relationship between nations. That is, it can impact for better or worse the conversion of your income - that is, the money you receive in your local currency.
Many Latin American countries have stable economies and even today with a global crisis and a war in Europe, they have controlled inflations. This means that earning in dollars is not necessarily good or better. However, and in very general terms, earning in dollars or dollarizing part of your salary can be a substantial improvement in income.
Income, benefits and salary
Before going into deeper issues, I want to clarify three terms that I am going to use in a different and conscious way:
- Income: is the money you receive in your account.
- Benefits: including money, is anything you can enjoy as compensation for performing a job or task. Among them, health care insurance - state or private, pension or unemployment savings, subsidies or others.
- SalaryIt refers to the legal compensation within the regulations of the country where you live. In addition to the benefits, it contemplates the payment of taxes and other monies that are contributed to the State.
I clarify that this is not a strictly legal discussion. I use these terms to keep the article as simple as possible. It is certain that every Latin American understands these words and concepts. However, for legislation in your country, each term may mean something similar but not exactly the same.
Benefits and income risk profile
Many of us, when we are very young, equate income with benefits. Our view of life is "fearless". I share this view, but not necessarily all youthful decisions. IMHO, this stage of life is ideal for taking risks and making big changes, for example: living in another city or another country, taking risky or less traditional jobs.
Young people are more likely to value short-term benefits over long-term ones. Higher income in hand over life insurance, supplemental medical services or pension savings. As time goes on, our desire for adrenaline wanes and things become different - new perspective, not good, not better, not bad, not worse, just different. This perspective on life, risk and change is what we might call a risk profile.
The risk profile is almost always individual. However, when starting a family, a mixed profile may be established. For example, a couple may decide that one person accepts a job offer with long-term benefits, while the other person accepts a riskier job. One person may be employed and the other person may be entrepreneurial, with the idea of higher income in the long term, but an unstable short term. Teamwork is, of course, very useful because it balances the best of both worlds.
Advantages of earning in dollars
1. Increased income
Earning in dollars represents for most of us a considerable increase in income. In other words, you get more money. I said it before and there is not much to explain. However, the higher income is not always due to currency exchange issues.
Generally speaking, the country to which you export your services (country of work) has a deficiency of skills and personnel in your area of work performance. Thus, companies are willing to take the risk of hiring people remotely (country of residence). Consequently, the "country of work" is willing to pay more than what companies in the country of residence would pay, but always less than what it would pay in the market of the own country with a deficit. Example:
- Person A earns X in Colombia
- Person B earns Y in the United States
- Person A and B have the same professional qualities and skills and are fluent in English.
- Company W, in the United States, needs to hire many people with the skills of A and B, but cannot find people with those skills.
- Company W is willing to hire A, and people like her in Colombia, as long as they are cheaper than B (who lives in the same city or country as Company W).
- If A costs about the same, the same or more, why not hire someone local? Company W has a bargaining margin between X (A's salary) and Y (B's salary).
- As a result, A may receive more than the local bids, but always less than what he would earn if he lived in the same country as company W.
The most common case nowadays are professionals in the technology areas. If you know how to program and can hold a conversation in the language of the country to which you are exporting your services, I have no doubt that you can access good job offers. You can also get paid good money (income). The hard part will be to maintain that opportunity and make it grow to your benefit.
2. Immune to inflation in your country
Earning in dollars almost always makes you immune to inflation in your country. Although this is not a general rule, it can be assumed with relative certainty. A country with higher inflation, such as Argentina or Venezuela, also has a higher devaluation of its currency.
Devaluation causes a worker to lose purchasing power each month. By earning in dollars, it is almost certain that the exchange rate reflects that inflation. Therefore, you always earn "more local money" even though you are paid the same in dollars.
3. Time to move - invest - money
In life there are two things that are inevitable: the first is death; the second, taxes. I am going to assume that you pay or will pay your taxes correctly, fairly and legally. So, receiving money from abroad makes you immune to the withholdings and contributions to the State that apply to the salary.
If you are a good person investing or multiplying your capital. Receiving the money and not having withholdings and payments can make you increase your income even more. This, of course, does not make you immune from taxes, but it gives you room - time - to pay them.
I invite you to read the disadvantages carefully. If you're not good at saving or investing, taxes are sure to be a headache. Just keep in mind that not all of your income is, in strict confidence, yours - it is also that of your partner, everyone's partner .... the State.
4. Autonomy and self-management
This one is very important for some. If you work for a foreign company, your bosses and colleagues will be in another country. That distance gives you room to manage your work and your time very autonomously.
Thanks to this, today we have remote or nomadic workers who are never in the same place for more than a year. This gives total mobility. I invite you to read this article 27 Digital Nomad Life Lessons - What I've Learned in 12+ Years. In this article there are very good lessons on this concept of nomadic worker.
Disadvantages of earning in dollars
1. Formalities to make the dollars effective
In most non-dollarized countries, moving dollars is more of a tourist exercise. Other countries have a formal or informal dollarized economy, such as Panama, Dominican Republic, Ecuador and in some contexts Venezuela and Argentina. This means that there is a business related to the movement and exchange of currencies. In short, someone makes money when you convert your dollars into pesos. In other words, you pay someone to convert your income into current cash.
A very high amount of income implies that you will be subject to monitoring and control by the government. This is done to avoid money laundering. Each country defines different control limits - in Colombia it is USD$ 5,000 per month. The idea is to prevent capital from traveling between different countries to evade tracking and thus facilitate its misuse. If you are subject to monitoring, keep in mind that you must report and complete government forms to explain the origin of the funds you receive. You can bring in more money, but you should consider more control or even be obliged to invoice.
Unless you travel to receive the money each month, and you are paid less than USD$ 10,000.oo per month in cash, you will have to report that money. That is, always report your income. Also, in some countries, exchange transactions are also monitored - transactions such as changing dollars to pesos.
Nationalizing or monetizing is almost always exempt from withholding taxes. Withholding taxes are, in common parlance, advances on your profit tax - or income tax in some countries. Companies legally incorporated in your country must pay taxes. Therefore, they cannot avoid withholding taxes.
You receive more money because you have no withholdings, or you have less than an employee. Because it is money reported when you nationalize, at the end of the year the tax collection institution will call you. It will call you and remind you that you received A or B amount of money in the year. If you are not good with accounting and tax reporting, you owe a considerable % to the State. In most Latin American countries, we are talking about more than 20% of your annual income. If you earned USD$50,000 in a year, you are going to have to prepare something like USD$10,000.
Of course, if you are detailed with your expenses and the structure of liquidation and payment of taxes allows it, you can lower that value considerably. If you live with your parents and you spend very little on things other than your tastes, travel and restaurants, well... you've been warned.
I recommend hiring an accountant or someone who specializes in tax returns - throughout the year - to help you with your finances. Making more money ALWAYS means paying more taxes.
3. Access to your country's financial system
One of the biggest problems is accessing the financial system in your country to obtain credit. Since you do not have a legal employment contract in your country, it is difficult for you to access credit. This may seem silly. But if you are thinking of starting a family or buying a car, not having access to financing mechanisms is a headache.
If you want to improve your "credit profile" reporting your taxes and saving will be good for you. But this is to the detriment of your income. That is, the money you receive in your hand or have available to you is not as much as you imagined. Reporting it means you'll pay more taxes and you won't be able to "stay under the radar".
4. No benefits
If you remember, we talked about income and salary. Here this becomes very important. I invite you to read How much does a project manager earn? and read about the importance of compensation and the concept of "emotional pay".
When you don't work for a national company, you almost certainly won't receive the benefits of a salary. Just a payment. And I'll explain why it's different.
When a company - serious and responsible - hires a person, it surely offers conditions and benefits. It also makes contributions to the State, even beyond taxes. The value of hiring an employee is known as Employee Cost.
For example, the minimum monthly salary in Colombia is something close to USD$ 250. However, the company has to pay something close to USD$ 350. Each country has its own rules and structure.
Now, imagine you travel to a different city to work - keeping the nomadic spirit that allows you to earn a dollar income - and you have an accident. Do you have insurance? Would you have savings to live on while you recover? Will the company abroad continue to pay for you despite your absence? What if you are permanently injured? Would you agree to a pension? What if there are people who are financially dependent on you?
Of course, I wish no one ill, and if nothing happens, so much the better. However, no one is immune to risk. It is better to be safe.
I have had the opportunity to earn in dollars and get paid abroad on several occasions in my life, and I want to share with you the lessons learned.
- Improve cash flow. More cash on hand is an immediate relief. No excuses, no excuses. When you receive the money, you have no holdbacks and the exchange rate can make you receive more money unexpectedly that month.
- A hidden cost. If you don't take into account all the expenses you should have, you will receive money, but less benefits. It is always good to calculate what you owe and what you want to pay on your own. Medical services (state or private). Retirement savings. Education benefits. Tax savings. I had no major problems with my negotiations with foreign companies. I admit that very early in my professional life, working for foreign companies did not make a difference and in the end, the "extra" income did not compensate for a job with benefits.
- Automate or reduce paperwork. If you are going to receive money every month, get organized to make the process as painless as possible. Earning dollars is not always simple. It is better to know the process well. Know what additional services you have to pay for - commissions, exchange rate differences, or spread and how your bank or financial platform makes your life easier.
- Be responsible with taxes, anticipate and save. The first time I had to pay income tax was a discovery for me. I had the support of professional friends who advised me and explained to me what and how much to pay. And I have never been one to evade, but if you don't do your accounts right, you can pay less - and risk - or overpay - and that money never comes back, or at least not easily.
- Complaining to have a better world is useless. Paying taxes and contributing to pension savings and health programs is fundamental. Corruption in your country may make you feel bad about it, but the reality is that pensions are the livelihood of millions of seniors, and contributing to your country's health care system is critical to ensuring national stability. Imagine a country unable to pay its pensions or provide health care to its citizens - take 10 seconds to imagine what kind of country yours would be. If, on the other hand, your country fails to provide those basic services, increased revenue is the first step to a better system. Contributing may be something you consider unfair, but it will always be necessary. The problem is not paying, the problem is that the money is well invested.
- Time does not come back. If a year passes without you contributing to your pension savings, it is a year that will not come back. In some countries, in order to access pensions, you must fulfill a certain amount of time contributing. Money and things can be exchanged, but time cannot. If you are not contributing to your pension and you do not have savings or investments to replace those savings, I tell you categorically, you are making a mistake. I do not believe that there is a perfect pension system, or that it will solve all your problems, but surely you are young and healthy, but life is a sequence of good and bad moments. Not everything lasts forever.
Earning in dollars is not necessarily good or bad. It certainly depends on your current situation. If you have X salary and you are offered 2X when receiving dollars, there is nothing I can say different than ACCEPT NOW. But if the difference is a 10%, 20% or 30% it sure isn't that good.
Similarly, if inflation in your country is very high and earning in dollars allows you to keep your purchasing power stable - i.e. the money is enough for the same thing every month - then it is a good idea. Try negotiating quarterly or annual inflationary salary adjustments with a company.
Learn how to move money between different currencies. I'm no expert, but if you can move money and the commissions for doing so don't take all your profits, do it. Nations do it with their reserves, why wouldn't you?
If you have any experience and want to share it or leave me your opinion to improve the article - or correct it - you are more than welcome.
Hi! I have always been curious about the means to receive money from working abroad, so that all possible commissions, withholdings and taxation are as fair as possible. Some receive directly into bank account, others use services like PayPal, Stripe, Payoneer; but I have not been able to find a clear trade-off on this.
Pablo, it all depends on the country where you live. Each country has different regulations and local companies. For some it is easy to get an account in US dollars and for others it is very difficult. So there is no single answer to your question.
Great article Alberto! What a pleasure to read from you on other topics like this. Regards!