It’s never been easier to work abroad. Some jobs can be done anywhere with just a phone and a laptop — and cheap flights let more people afford to work from anywhere. For those with transferable skills, working abroad as a contractor can be hugely attractive.
However, there are some administrative challenges to keep in mind. This article highlights the 4 main things you’ll need to know to make sure your contracting assignment is a success.
For as long as the UK remains in the EU, other EU states don’t require special visas. However, in some places in the eurozone, you may need a permit to work as a contractor.
Outside the EU, work visas are needed. Some agencies may not work with you until you’ve got one. However, many countries offer special visas for skilled contractors, so it’s worth researching the opportunities in your preferred country.
Also, taxation is different everywhere. Specific rules will apply depending on where and how you’ll be working.
Visa/permit applications and tax compliance are complex, and you may want advice. An umbrella company can help. Read on to find out how.
The idea of an umbrella company is to make your transition to working in a foreign market quick and simple.
Some umbrella companies are international, some are local. They’re also called different things in different countries. In the US, they’re known as payroll companies; in Australia they’re called salary packaging companies.
They can help you sort out numerous aspects of your work including:
- Helping with the paperwork you’ll need to qualify to work. For example, they can arrange for a potential client to sponsor your visa - which can take months and may require proof of your activities.
- Helping with taxation requirements in different countries, states and even in small administrative districts called cantons. There are different rules for registration, tax returns and tax relief everywhere. So timing and paperwork are critical.
- Arranging insurance, credit ratings and so on. And as the implications of Brexit become clearer, they may be able to offer you further help and advice.
Of course, there are fees involved. However, many contractors are happy to pay them to relieve the administrative headaches. In some cases, the tax savings alone can make the use of an umbrella company worthwhile.
As far as UK tax is concerned, it’s all about whether you’re a UK resident. This isn’t the same as being physically in the country; it’s a legal concept overseen by Her Majesty’s Revenue and Customs (HMRC).
If you establish you’re not a resident of the UK, you are then exempt from paying UK taxes.
In the year you leave the UK, you can adopt a ‘split-year’ treatment for your tax if necessary. This will allow you to only pay income tax and capital gains tax for the part of the year when you were a UK resident.
On the other hand, if you remain a UK resident, you’ll be liable for UK taxes. However, you may be able to claim some expense deductions. For example, you can claim travel expenses - like flights and hotels - if you’re travelling abroad on a contract. But, you can’t claim them if you’re travelling for a holiday and happen to do some work while you’re there.
If you’re planning to move abroad permanently, or for at least three years, then you become non-resident from the day you leave.
However, if you travel back to the UK and want to remain a non-resident, you’ll need to be careful. Keep your visits to fewer than 183 days in any one tax year, and to fewer than 91 days on average over a period of 4 years.
The HMRC can take other factors into account as well. They can look at your ties to the UK, such as housing, family, memberships and company directorships.
The definition of residence is complex, so check HMRC’s residence indicator.
If you plan to return to the UK at some point, you should think about continuing your national insurance (NI) contributions. This entitles you to continued NHS treatment and the state pension.
Using your UK company abroad means you can become liable for local corporate taxes. They can be much higher than in the UK, so planning is essential.
Depending on specific regulations, it might make sense if you plan to live there for a long time. There’s expense and paperwork, and you’ll need a local accountant.
Tax regimes in every country are different. Below are some brief notes on some of the more popular European countries for contractors.
Wherever you go, seek local specialist advice in case you’re liable for tax or social security. Your client(s) may also be able to help if they’ve used UK contractors before.
The Belgian tax regime is complicated. As such, it’s strongly recommended to use an umbrella company. You’ll also need to register with the Belgian tax authorities.
For the self-employed, you’re liable to both Social Security and taxation. Social Security contributions are 22% on net income - up to around €55,000 - and then approximately 14% on further income up to a maximum income of around €82,000. The payment is deducted from your earnings for income tax purposes. Personal tax rates are high – up to 50% on earnings over around €38,000.
You can only set up a limited company in Belgium if you’re a resident there – and if you have a university degree. You must also have several thousand euros in a Belgian bank.
France is a relatively easy country in which to set up as a contractor. And business is plentiful. Most companies enforce a 35-hour working week with no out-of-office emails or phone calls.
You probably won’t need a permit, but you may have to register with the French tax authorities (*Direction Générale des Impȏts*)
However, you’ll be subject to French taxation, which is complex. Working in France and trying to put the money through a UK company means that you’d have to pay tax in both France and the UK.
You must also have more than one client – otherwise you aren’t considered self-employed. If you only have one client, you should be employed, preferably by a French-registered Temporary Labour Company. This can also be an umbrella company.
The German market is popular, but difficult for contractors who don’t enjoy administration. The self-employment rules are strict and include a lot of paperwork. Breaches carry heavy fines.
To get a work permit, you’ll need to get sponsorship from your German employer(s). This can be challenging, as many employers don’t want to sponsor temporary workers.
To work legally as a contractor, you’ll have to work for a licensed temporary agency or umbrella company. A few German companies ignore these rules, but not being compliant carries risks.
The Netherlands is an attractive market for contractors. If you’re a skilled worker, you can take 30% of your salary tax-free, and that’s only one of the tax breaks.
To qualify, each of your employers should make an application for Expatriate Tax Status within four months of your start date. It helps to have a degree and/or a professional qualification.
To get a work permit, you must register for health insurance. This will cost around 17% of your pay, up to a maximum of €33,000 per year.
You can’t do business through your own limited company. Most contractors work through a Dutch-registered payroll company. Every worker must be employed by a Dutch BV. An umbrella company is the only route, short of setting up your own local company.
Switzerland is party to the Schengen Treaty, despite not being in the EU. As a Brit, you can travel to Switzerland without a visa, but you’ll need a work permit. EU citizens can stay in Switzerland for three months while looking for work.
The tax system is generous but very complex and depends on which canton you are living and working in.
If you want to turn some of your earnings into sterling, you’ll face some exchange rate risks and transfer costs.
Exchange rate risks are impossible to avoid, but can be managed. If you change all your money in one transfer, you’ll be at the mercy of that day’s exchange rate — good or bad. If you’re more risk-averse, you can make regular smaller transfers. Over time you’ll get closer to the average market exchange rate.
For each transfer there are a mixture of fees, in addition to a mark-up in the exchange rate - often known as the spread. The fees are normally more transparent than the mark-up, in part due to the fact that many foreign exchange providers make more money from spreads than fees.
Take PayPal, for example. Their fees for sending money to the UK are between 0.4% and 1.5%, depending on where the money is sent from. But their exchange rate mark-up, on top of their currency conversion fee, is between 2.5% and 4.0% of the exchange rate. That adds up.
By contrast, TransferWise will tell you their fees up front, typically 0.5-1% depending on the currencies involved, and with no exchange rate mark-up. All their transfers use the mid-market rate; with no spread. This makes it quite a bit cheaper than the alternatives, including PayPal and banks.
And if you want to get paid like a local while you’re working in Europe, you can open a Borderless account with TransferWise. They’ll give you European bank details, and money can be sent directly to your account. You can even hold money in multiple currencies and exchange between them for a low, fixed fee. It makes getting paid while you’re working abroad hassle-free.
Use TransferWise to cut the costs of getting paid when working abroad as a contractor.
The information in this article is correct as of 15 September 2016. It should not be seen as a tax consultation and is not a substitute for professional advice.