Contractors' Questions: How to cut my multiple tax liabilities?
Contractor's Question: On August 31st 2009 I'll be moving to a new contract and moving overseas spending the next few years between the UK, Malta and the Czech Republic. I will not spend the mandatory 183 days a year to become tax resident. This is not an attempt to evade tax – I simply wish to plan in order to pay it more efficiently – so where do I pay it and how I avoid being heavily taxed by HMRC?
Expert's Answer: There are two sides to this situation: the local (Malta, Czech Republic, anywhere else) and the domestic (UK), based on the assumption that the
contractor is currently a UK resident.
The local side of taxation says that any funds earned locally (i.e. money made by working the country) must be taxed locally. Maltese income must therefore be declared in Malta, Czech income in the Czech republic, and so on. As long as no longer than 183 days are spent in either of these countries, only locally-earned income is subject to local tax. This means that the Maltese income needn't be declared to the Czechs and vice-versa.
The second side of this is the UK side. If we are talking about someone who is tax resident in the UK, and who will continue earning in the UK, it is unlikely that they will lose their UK tax residency (see HMRC's document IR20 for more information on tax residency). By remaining UK tax resident, they remain taxable in the UK on their worldwide income. Both the Maltese and Czech incomes must therefore be declared in the UK, although any tax paid to either country may be offset against the
resulting UK tax liability by virtue of each country's double taxation avoidance treaty.
In situations such as these, where several legislations come into play, it is always worth seeking expert advice before the contracts start in order to ensure that everything is handled correctly.
The expert was Matt Walters at Capital Consulting