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One of the perks of being a freelancer or contractor is that you have more flexibility to work for whomever you want, wherever you want. You may choose to complete a design job for an American client from a café in Paris, or sort out your accounts on an Argentinian hacienda.
Working from a foreign country isn’t all margaritas and sandals though; there are both legal and tax implications for either working abroad, or working for a foreign company!
If you’re just going abroad for a few weeks or months and want to work whilst you’re away, then there usually won’t be any tax issues to consider.
However, if you’re planning on moving abroad permanently, or for a period of three years or more, you will be treated as not resident in the UK from the date of departure. If you are no longer a resident, you will no longer have to pay UK tax.
The situation is a bit more complex if you’re planning to frequently return to the UK. If you do this, you will remain a resident and liable to pay tax unless your visits are less than:
183 days in any tax year
An average of 91 days per tax year over a period of four years
On top of this, HMRC will take into account a number of other factors, including:
Your family ties
Social ties, such as memberships at UK clubs or societies
If you still have a house in the UK
If you have any work ties, including whether you’re still the director of your limited company
Note that for the 91 day test, qualitative evidence will also be looked at to determine your residency, such as whether or not you’ve bought property abroad. If this is seen as insufficient to suggest you’ve left the UK, you will be treated as a resident for the first three years, after which the situation will be reviewed.
What implications does this have? If you are only a UK resident for part of a tax year you may, in certain circumstances, have your tax adjusted so you only pay on income and capital gains for the part of the year that you are living in the UK. This is called ‘split-year treatment’.
This is especially relevant if you end up having to pay tax in the country you are currently living in. Note that every country has its own laws on residency and tax, so it’s recommended that you seek the advice of a specialist in the relevant country.
Also remember that if you’re working outside the EU you’ll need to apply for the relevant visa, especially if you plan to stay longer than permitted by a tourist visa, which is usually around 90 days.
Residency laws are very complex, so if you’re unsure whether you qualify as a UK resident or not, you may need to speak to a specialist, our article Am I a UK Tax Resident is a good place to start.
Finally, you may want to consider your options with expenses. If you’re visiting another country for the sole purpose of fulfilling a contract then you will be able to claim expenses for flights, hotels, etc. from your limited company. However, if you just so happen to be on holiday and doing a bit of work, then you will not be able to claim.
The UK has one of the most generous Corporation Tax rates in the world. As a result, even if you are moving abroad, it may work out best to keep your company registered in the UK. There are, however, a few things to take into account.
Tax laws around the world are different and some might not actually let you contract through your company
In countries that do allow it, you’ll have to make sure you:
Source expert tax help in the country you are working in
Consider what UK personal and Corporation Tax you’ll have to pay for bringing the money back into the UK – if your UK company remains, it will still be liable for corporation tax in the UK
If you are still a UK resident, continue paying National Insurance contributions, if you want to be eligible for a UK state pension
Some countries have strict rules on who can open a bank account in the local currency. If so, you’ll have to consider how your clients are going to pay you.
What’s the exchange rate like in the country you’ll be working in?
If you stop being a UK resident then, if at some point you decide to return to the UK, you’ll have to consider catching up on National Insurance contributions
One way of satisfying most of these criteria is if you use your UK limited company but find a locally-managed umbrella company. An umbrella will help you arrange your visa, work out details of sponsorship, and determine the most favourable tax package.
When looking for a company to go with, keep in mind that umbrella companies are not called the same thing in all countries. In Australia, for example, they are called ”Salary Packaging companies,” and in the US they are called ”Payroll” companies.
The downside of working this way is that you essentially become a permanent employee of the umbrella company, and therefore lose the tax benefits of being self-employed.
Once you’re settled, if you are considering working abroad for a prolonged period without returning to the UK, it may be beneficial for you to set up another limited company in your new country of residence.
Note, however, that you will need a local accountant for taxes and you will need to handle the administration for registering and maintaining the company. If this is something you want to consider, it’s recommended that you seek expert advice.
Wherever you are in the world, there are a few basic rules you need to observe when accepting work from clients in another country.
Most importantly, you should always make sure that international clients agree to a contract that binds them to payment laws in the country you’ll be invoicing them from. If you don’t do this then, should a dispute arise, you may end up entering a legal battle in a foreign jurisdiction. Any legal dispute is costly and time consuming – if it takes place in another country, it’s even worse.
Method of payment is also something you’ll need to consider, as international bank transfers take a long time to process, and cost a flat fee to send. A solution to these troubles may be to convince your international clients to pay via an online payment service such as FairFX, who offer free international money transfers You can even take card payments using certain online services.
If your client is particularly forward-thinking, they may even suggest being paid in a digital currency such as Bitcoin, which will allow you to be paid instantly and with zero transaction fees. Be aware if you do choose this method then you are advised to have an account set up with a reputable bitcoin exchange if you want the money in traditional currency as soon as possible.
Europe is a popular choice for British freelancers and contractors looking for international work due to its proximity to the UK – both geographically and culturally. Here’s a breakdown of important points to note for the most popular choices.
Tax rates in Belgium are high and you will have to pay 50% on any earnings over €37,330
To set up a limited company in Belgium you must be a resident there and have between €6,000 and €12,000 in a Belgian bank. You must also have a university degree
For the self-employed, a social security tax is levied at a rate of 22% on net income up to €55,405.04 and at a rate of 14.16% on income between €55,405.04 and €81,649.49. Income in excess of €81,649.49 is not subject to social security contributions and the annual maximum contribution for self-employment activities is €16,100.56
Switzerland is a popular choice for contractors due to its notoriously generous tax system. However, due to not being in the EU, it can be harder to find work
Despite not being part of the EU, Switzerland is still subject to the Schengen Treaty, which means as a UK citizen you will be able to travel there without a visa. You will, however, be required to apply for a work permit. EU citizens may reside in Switzerland for three months whilst looking for work
Switzerland is unusual because it is split into very small and independent areas known as cantons. This makes the tax system very complex, because each canton has its own laws and rates. Consulting a Swiss tax expert is therefore highly recommended
You will need to obtain a work permit, which generally requires sponsorship from a German company. This can make it difficult for contractors, as many employers don’t want to sponsor temporary workers, and you’ll need sponsorship from every new employer
Laws on self-employment in Germany are very strict and make IR35 look like child’s play. Make sure you know the rules inside-out, or you could be subject to heavy fines
If you thought the paperwork involved with being self-employed in the UK was a chore, Germany is something else. Unless you’re highly fluent in German, don’t even attempt to do it yourself
As one of the champions of the EU, France is an extremely easy place for UK contractors to obtain work, and you will most likely not need any kind of permit
Renowned for their love of leisure, most companies enforce a strict 35-hour working week. There’s even a ban on out of office emails and phone calls
It should be noted, however, that working in France and putting the money through a UK limited company is not compliant with French tax laws and you will be required to pay tax in France as well as in the UK
In order to obtain a work permit it is a requirement to register for health insurance. This will come out of your pay as a percentage (around 17%) and will cost a maximum of €33,000 a year
One of the most attractive aspects of working in the Netherlands is an allowance in place for skilled workers coming to work in the Netherlands which allows you to take 30% of your gross salary tax-free
In order to obtain the 30% ruling, you must have the relevant experience in your field. A higher education qualification or professional certificates will also help your eligibility. The application for the 30% ruling should be made by your employer within four months after the start of employment, and must be applied for with each subsequent employer
Take a look at our comprehensive IR35 guide.
IR35 is a complicated piece of legislation that affects contractors.
You might think it would be easy to distinguish between a contractor and employee, but HMRC don’t see it as that black and white.
For more information, give us a call on 0333 311 8000