Contractors' Questions: Can I use my limited company overseas?

Contractor’s Question: A recruiter I’ve recently signed up with is sounding a bit reluctant about placing me for an overseas assignment. Perhaps this is because the agent initially thought I was using an umbrella company – which I once was, whereas as of a few months back, I now run my own personal service company. In short, can the agency contract with me as a limited company for this overseas assignment? Incidentally, I won’t be remotely supplying services from the UK, but will actually be at the client workplace, overseas but still in Europe.

Expert’s Answer: Notwithstanding the challenges of living and working overseas, a key consideration for your placement has to be compliance – particularly related to tax and social security in possibly more than one country.

While a UK limited company is traditionally regarded as a ‘no-brainer’ solution for consultants contracting their services in the UK, it is less straightforward to say whether it can be relied upon for an overseas assignment.

The answer to your question is ‘yes,’ but although the UK limited company is legally structured and will be recognised abroad as such it may well have a tax liability in the country of work.

There are many points to be considered when determining in which country a person and/or a company is taxable when working cross-border.

For example, the rapidly increasing mobility of workers across Europe appears to have exposed to local tax offices a minority of contractors who, either innocently or with intent, have become embroiled in tax evasion and subject to investigations. Unfortunately, those investigations are not always handled as courteously and as professionally as they are by HMRC officials.

Stoked by the current shortfall in tax revenues and because it is a natural bias for tax authorities to presume there is ‘no smoke without fire,’ a rapidly growing net is being cast by governments, particularly across Europe, to expose instances of tax fraud by expatriate workforces.

Recruiters and their client companies are quickly becoming more aware of the issues. Both recognise this arena as particularly sensitive and covered with widely differing opinions. Therefore, before determining the most appropriate path into Europe, it is eminently sensible for the recruiter to encourage you, the contractor, to consider advice from a qualified and regulated expert in the field.

There are some recruiters still handling their placements a PSL of unregulated and poorly researched management companies. Such an act could reflect paucity of ‘contractor care’ by those recruiters. And although it is normally the contractor who exclusively faces the wrath of a tax office over an incidence of perceived tax evasion, it is the recruitment business which is leaving itself open to a loss of goodwill by the client who has to deal with a visit from the local taxman checking for any signs of possible collusion between client and contractor at the place of work.

As the contractor, it is vitally important that you consider all the tax implications before starting work in the host country. You need to be satisfied all the regulations in the country of work have been taken into account to avoid the prospect of any unpleasant and expensive surprises in the future.

When you perform services in another country, there is a likelihood tax will be due (not withstanding the Double Tax Treaty between the UK and the country of work) in that country on the income generated by those services. Put simply, if the services are to be performed by the individual in your name (i.e. as a self-employed person), you will be personally taxed as the self-employment is deemed to have a fixed base in the country of work.

The Expert’s Answer is an edited extract from comments by its international Ltd, specialist consultants in tax and finance for UK individuals working overseas.

Editor's Note: Further Reading - Contractors' Questions: Should I use my limited company overseas?