Working in the contracting industry often provides opportunities to work abroad for short or medium terms. Contractors receiving an offer to work in the EU is a scenario we see often at PayStream.
Assuming that a contractor has all the permissions to work in Europe what are the tax implications and what do they need to do?
Essentially every EU tax authority will be looking to take both tax and Social Security contributions out of payments made to someone carrying out duties in their country.
Labour markets in the EU vary from country to country but they have several common approaches when it comes to taxes.
If you are used to contracting your services through your own UK company, do not necessarily assume that you will be able to do so in your host country. Quite often foreign contractors may be prohibited from using a UK personal services company to invoice and receive payment.
Many EU tax authorities require an individual registration and local payments to be subject to local taxes and Social Security deductions in the same way as the UK's HMRC do with PAYE. This means that one of the solutions to working and paying tax is through a payroll provider or umbrella company. These organisations need to be registered with the local tax authority to deduct tax and Social Security from the payments which you receive and account for it to the tax office.
The concept of being self-employed is of course not unique to the UK but each country will have its own interpretation of what that means and often a different way of taxing the profits. Some have special reliefs or allowances. Being self- employed abroad will invariably require the completion of a Tax Return in the country in which you are working and you should be looking to obtain advice and assistance from a local Accountant.
In many EU countries the Social Security charges are relatively high and if you are contracting for a short period you can legally avoid having to pay them by presenting an authorised A1 form. This form, obtained from HMRC's National Insurance team, is proof that you pay, and will continue to pay social contributions in the UK.
Although you may be working abroad on a short contract the likelihood is that you will still be a tax resident in the UK. In common with most countries, the UK tax laws seek to tax its residents on their worldwide income. This means that you would need to declare the income you received from your overseas work on your UK Tax Return even though it has already been subjected to tax in the country where you were working.
However because of what are known as Double Tax Treaties, signed between the governments of most countries, it is possible to obtain a credit for that overseas tax deducted against your UK tax bill. The extent of this relief will depend upon the particular Treaty between the UK and the host country but will not exceed the amount of your UK tax liability on those overseas earnings.
Working abroad can involve complex tax matters and you should take advice as soon as possible if you have an offer to consider.