One of the benefits of working as a freelancer or contractor is the freedom and flexibility, which helps contractors work for whomever and wherever they want.
For example, as a contractor, you could work on a design project for an American client from a café in Spain or settle your accounts in an apartment in the Canaries for a client in Paris.
Working from a foreign country is not at all easy as there could be specific legal and tax implications for both – working abroad or with a foreign company.
- If you are only going abroad for a few weeks or months and intend to work while there, there are usually no tax implications to consider as most countries allow a short period where you will be classed as a non-resident (please check the country’s law before travel).
- However, if you intend to relocate abroad permanently or live abroad for a longer duration, you could be classed as a non-resident of the UK as of the date of departure. You will no longer be required to pay UK tax if you are no longer a resident.
- If you intend to visit the UK frequently, the situation becomes a little more complicated.
If you do this, you will continue to be a resident and subject to taxation unless you:
- Meet the automatic overseas test or.
- Do not meet the sufficient ties test.
For sufficient ties test, HMRC will consider several other factors, including:
- Your family ties.
- Social ties such as memberships in UK clubs or societies.
- If you still have a home in the United Kingdom.
- If you have any professional ties, including whether you are still the director of your limited company.
Note – You can work out your residence status using the statutory residence test. You can find the details here.
What are the Implications?
If you are only a UK resident for a portion of a tax year, you may be able to have your tax adjusted so that you only pay on income and capital gains for the portion of the year that you are in the UK. This is known as “split-year treatment”. It is especially important if you end up paying taxes in the country in which you are currently residing.
It should be noted that each country has its own residency and tax laws, so it is recommended that you take the advice of a professional expert in the relevant country. Also, keep in mind that you will need to apply for the appropriate visa, especially if you intend to stay longer than permitted on a tourist visa, i.e. generally around 90 days.
You need to know that residency laws are complex to understand; thus, if you are not quite sure that whether you qualify as a UK resident or not, it is highly recommended that you must take advice of a professional expert to know more about the residency laws and identify your current residency status.
Does IR35 apply to foreign contractors?
Working offshore does not mean that IR35 rules will not be applicable to overseas contractors. For example, contractors working in remote areas, offshore installations, or survey vessels for long periods are not excluded from IR35 if they and their company are UK residents for tax purposes.
Consider the case of an oil and gas contractor employed on an oil rig who meets the employment tests used to assess IR35 status, such as being supervised by their client or unable to substitute. As a result, this contractor may be classified as being within IR35 and thus expected to make a deemed payment.
If you are looking to move abroad to live and work permanently outside the UK
Contractors who are considering relocating permanently to another country will find their tax situation to be relatively simple.
You will normally cease to be a UK tax resident on the day you leave the country permanently. However, it is recommended that you complete and submit a P85 form to HMRC if leaving the UK to work or live abroad permanently.
You can expect to be treated as a tax resident of your new home country from the day you arrive. Each country will have its own rules regarding tax residency, so it is critical to understand these before you arrive. This is especially true if there is a time limit for new arrivals to register for taxes.
You’ve probably done your research before deciding to relocate. Still, if you don’t plan to hire an accountant or tax adviser in your destination country, you can visit their tax authority’s website for more information.
If you are planning to work abroad for one/series of short-term contracts
Contractors who are given short-term employment abroad can expect to receive general tax advice from the country where they will be employed. This information could come from the agency or the end client. Advice on whether it is more effective to operate on a direct employment contract, through an umbrella company, or through a UK company where this is possible may also be available.
Determining a persons actual tax residence is often a complicated matter, especially if the individual works in one or more countries over the course of a year. Detailed guidance should be sought if clarity is required.
To solve the more complicated cases, tax advisers and HMRC rely on the UK’s Statutory Residence Test. It considers factors such as days spent in and out of the UK, working arrangements, family ties, housing, and economic interests to help reach a decision.
Leaving the UK to work permanently overseas but still receiving income from UK country
Even if you have left the UK and become a tax resident elsewhere, you will most likely be required to continue paying UK taxes on certain types of income earned in this country, for example, rental income.
If you continue to own and rent out UK property, you will be subject to UK tax on your net rental income under the UK’s non-resident landlord rules. In addition, state and occupational pensions from the United Kingdom may continue to be taxed here.
Can you avoid being taxed twice on the same income?
There are arrangements in place through Double Taxation Treaties between the UK and the majority of countries around the world that, for the most part, prevent the same income from being taxed twice. These treaties grant one country or other taxing rights based on the set of rules.
It is often possible to arrange for income earned in the UK to be exempt from taxation in this country if it is taxed in the country where you live. If you are required to pay tax in one country on certain types of income, in that case, the Double Tax Treaty will usually allow you to receive a credit for the foreign tax deducted against your local tax liability.
Understanding your tax residence position may help you reduce the tax amount you may have to pay; the problem is navigating your way through the complicated subject of tax to get a good understanding of your position.
How has Brexit affected contractors and independent consultants working in the EU?
The United Kingdom left the European Union on 31 January 2020.
From the 1st January 2021, contracting through your limited company in the EU is very similar to working anywhere else in the world.
Contractors who need to travel to The European Economic Area (EEA) countries on business, whether that’s to work onsite or even just meet clients.
You’ll need a visa if the following applies:
- You plan to stay longer than 90 days in a 180-day period.
- You’re carrying out a contract to provide a service to a client in a country which your employer has no presence.
- You’re delivering your services in another country as a self-employed person.
So, if you are a contractor or freelancer working in the EU will need a visa, not only to travel on business, but also perform work there.
Obtaining a work permit
You’ll need a work permit to work in most EU countries if you’re a UK citizen. In most cases, you’ll need a job offer from your chosen country so that you can get a visa to move there.
It’s likely that you’ll either need to register locally as self-employed in the EU country or become an employee of the end client or alternatively consider using a specialist Umbrella company such as our partner International Umbrella.
Check with the UK-based embassy of the country you want to work in to see what you need to do.
If you want to work in an EU country, check the country’s living in guide for updates.
Self-employed UK contractor, Tax and NI Position
The Double Tax Treaty regime and tax rules were bilateral agreements agreed between countries, rather than EU law. This means that you should only pay tax once in one territory and will be given credit for any tax paid elsewhere. We can advise you on this.
Social Security / National insurance contributions
If you leave the UK to work in:
- the EU or Switzerland, you will only pay into one country’s social security scheme at a time.
- Iceland, Liechtenstein or Norway, you may need to?pay into more than one country’s social security scheme at a time.
You will usually pay social security contributions in the country you are working in.
If you go to work in the EU or Switzerland
The UK has social security agreements with the EU and Switzerland.
You only need to pay National Insurance in the UK if HMRC have issued you with the relevant certificate.
The certificate can be used as evidence that you do not need to pay social security contributions in the country you are working in.
You, or your employer, should apply for a certificate if any of the following apply, you’re:
- going to work temporarily in an EU country or Switzerland for up to 2 years.
- working in the UK and Switzerland at the same time.
- working in the UK and one more EU countries, at the same time.
- a civil servant working for the UK government.
- working onboard a vessel at sea, with a UK flag.
- resident in the UK and working for a UK employer.
- working as a flight or cabin crew member, where your home base is in the UK.
VAT: UK Contractor Supplying Services to the EU
If you’re VAT registered, the rules applying to the supply of services between the UK and EU companies are the same as the rules for supplying services from the UK to the rest of the world.
The Business to Business (B2B) general rule applies so that the supply is made where the customer belongs. Commercial evidence that the customer belongs outside the UK should be retained. For EU customers their VAT registration number is good evidence.
UK Contractor reclaiming EU VAT
Before Brexit, you could recover VAT incurred in other EU countries using an electronic system, but this is no longer available. You can continue to reclaim the VAT from EU member states, but you must do this using their existing refund system. The process varies across each EU country so you will once again need to seek local advice in each EU country where you incur VAT.
Exceptions to the rules
If you were already registered within the EU, or were working in-country lawfully before the 1st January 2021, you may already have the legal right to work in the EU or elsewhere overseas post-Brexit.
You may also be an exception to the rule if you can acquire permission through marriage, you can prove ancestral rights or an investment scheme. It is important to note that these exceptions are not fully clear, so it is advisable to seek professional advice for each country.
To summarise, working abroad is still a viable option for contractors and freelancers seeking new opportunities. There may be difficulties in the short term, but diligent research, agency support, and professional experts like dns accountants can offer you advice along the way.
For help and advice for contractors and freelancers going abroad, call us on 03300 886 686, or you can also e-mail us at email@example.com.
Any questions? Schedule a call with one of our experts.
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