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| CURRENT SECTION :: Overseas Guides | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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In his third article for the site, David Houston of Global K provides some words of advice to UK Recruitment Agencies who are involved in placing contractors overseas, especially if such placements are not part of their routine business. The first hurdle UK recruitment agencies will come across when placing contractors on overseas assignments is deciding on the entity with whom they should make out the contract. Contractors will present them with many varied options through which they wish to take the contract – here are some pointers as to what to look for – A. Who you are signing a contract with 1. Advise your contractor to avoid the traditional UK Limited Company A one-man company (director-controlled company) will normally deemed tax resident where the “management and control” are physically present. So if Joe Bloggs is in, for example, Belgium, carrying out a contract, Joe Bloggs Limited is more than likely to be deemed tax resident in Belgium. That means, quite simply, that all payments into and out of Joe Bloggs Limited would be subject to Belgian taxes at source. This is a fact of international tax law, and no “183-day” rule applies in these circumstances. Furthermore, your contractor will not avoid the implications of IR35 simply by taking a foreign contract. 2. Avoid offshore companies Any contractor undertaking a contract in Europe through an “offshore” company (Isle of Man, Channel Islands, BVI, Gibraltar) is 99.9% certain, in all bluntness, to be involved in a “fiddle”. No matter what excuse may be offered, or what background may be presented, offshore companies cannot comply with EC social security legislation and are used in practice to funnel funds away from their tax source, in the classic “I'll never be found out anyway” blind approach of many UK contractors. 3. Avoid contractors who say they are “self-employed” There are very few situations in Europe where it would be legal for a contractor to claim UK “self-employment” as a means of avoiding their overseas obligations. Most European countries have IR35 type legislation defining self-employment, and contractors don't generally comply. In certain circumstances overseas registered self-employment may be valid, but check on the background to this before issuing the contract, and in all cases of self-employment, look for some independent verification of the status. 4. The best option is a management company solution! B. Client requirements Sometimes overlooked in an attempt to get a contractor's “bum on seat”, you should always pay attention in the first instance to the requirements of your client, before pointing the contractor in any particular direction. In certain countries clients will insist that contractors on their site are appropriately registered and may insist on certain local legal practices being adhered to. For example in The Netherlands most clients will insist upon evidence that the contractor is registered on a Dutch payroll and is accounting for Dutch wages tax. And in Germany there may be an insistence on German labour licensing being complied with, as it is illegal to “hire out” employees to third parties without a licence to do so. In Italy there may be an insistence that local social security withholding is applied, without which the freelancer cannot generally be operating legally. Before you place a contractor at a client, always try to address your client's concerns / requirements first, and then find a solution / management company for the contractor that can provide a solution which satisfies the client's requirements. C. Local registrations It should be recognised that for your contractor to be “legal” in his destination country, certain local obligations must be complied with. Local registration requirements vary from country to country. Most countries have a form of “national insurance number”, which usually doubles up as a tax registration number and you should ensure that your contractors obtain such a number, as this is the only way of proving that they have registered for local taxes. Certain countries also have a requirement to obtain a local ID card, without which they cannot rent a property, get connected to the electricity supply, hire a car etc. Lastly, beware of non-EC nationals, many of southern hemisphere origin (!!), who believe they can work their way around Europe simply because they had an English grandmother. Non-EC nationals require work permits to work within the EC, and you should be sure to check this out if you suspect the individual does not have an EC passport. Footnote: All of the registration obligations set out in paragraphs A to C above carry some risk to the recruitment agency if not observed rigorously. Foreign tax authorities are often empowered to seek recourse to the “biggest pocket”, and if unpaid taxes and social security cannot be recovered from Joe Bloggs, they will seek to recover from you, the agency, or potentially even more damaging, from your client! D. UK tax position on departure Contractors may believe that all their UK tax problems end on departure from the UK. This is not true! No matter where a contractor goes to work, he or she will have a continuing liability to UK tax until he / she has completed a full tax year outside the UK. So, for contractors moving overseas just now (mid-April 2006), they cannot avoid UK tax implications unless they work for almost 2 years outside the UK before they escape any liability to UK tax (until April 05, 2008). The optimum departure time for a contractor wishing to avoid UK tax is therefore March, where a one year stint overseas will more or less satisfy the requirement to be out of the country for one full tax year! In any event, you should be advising your contractors, before moving overseas, to take advice on their potential UK liability in conjunction with their overseas liability. E. Anticipated bottom-line in Europe You should be wary of contractors who adopt a “gung-ho” approach a la “I'm going abroad to escape the taxman” approach. Ensure that your contractors don't have any false illusions about their anticipated bottom-line in their European contract: - The contractor's personal circumstances will dictate at all times his exposure to local taxes and ongoing exposure to UK taxes. No two contractors are the same and it is often difficult to give a general answer that will apply across the board, however serious professional advice, if sought (and offered by you), will generally give the contractor some peace of mind. The good news There are positives to working in Europe from the contractor's perspective: - 1. Pay rates can be more attractive (as I'm sure you know!). 2. Accommodation costs / cost of living tend to be less than London or other main UK cities 3. Cheap flights home thanks to budget airlines 4. Culture! And from a tax planning perspective: - Global K provides tax planning and solutions to contractors taking up a contract assignment in a foreign location. For further information on the tax implications of your proposed assignment, please visit GlobalK. The author accepts no responsibility for any loss which may be suffered by anyone taking action based on advice given or solutions offered in the contents of this article. Personal professional advice should always be sought by anyone deciding to undertake a contract overseas. Previous Page
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