Contractors’ Questions: Should I use my limited company overseas?

Contractor’s Question: If I relocate with my family overseas, probably in Italy, but wish to continue contracting in the UK, what set-up should I consider? I currently work through my own UK-registered limited company and operate relatively straightforward tax, PAYE and dividend payments. I would like to continue this set-up but I am not certain that this arrangement will be viable once my permanent residence becomes an Italian one. What are my options? Is there an Italian equivalent to a limited company or can I maintain my UK ‘Ltd Co’? Or is there some other tax/financial vehicle that might be more appropriate?

Expert’s Answer: There are two sides to answer your queries: the first side will cover the source of the income and the second your tax residency.

So where is the income generated? If you continue to carry out your work in the UK, commuting back home to Italy, for example, on a weekly basis; then your first tax liability will continue to be to the UK, just as it is at the moment. In this case you can safely continue to use your UK limited company to invoice your client(s) and pay your salary/dividends.

If you will be carrying out your work in Italy, however, then you will need an Italian vehicle to invoice through. This could be an Italian freelance set up, an Italian umbrella company or an Italian company that you have set up. In this latter instance, the use of your UK limited company will no longer be possible unless you register it in Italy and submit to Italian tax and payroll obligations.

The second aspect: where are you tax resident? You need to consider your tax residency. If you are cutting all ties with the UK and will no longer spend significant amounts of time in the UK, then you will eventually become tax non-resident (see HMRC 6, chapter 2 for further detail).

This means that you will no longer have a UK tax liability to contend with on your worldwide income. It’s important to note, however, that Italian tax residency is also a concern: if you are working in the UK through your UK limited company and returning home to Italy on the weekends, you will have an Italian tax liability on your UK income (although any tax paid to the UK will be deducted from this liability). In this situation, you should seek the assistance of a tax specialist in Italy to ensure that your liabilities are taken care.

As you can see from this 2-part overview, there are a number of elements that influence how and where you should be taxed. While the ground rule always remains that you should pay tax wherever you are physically generating the income, it is still crucial to seek professional advice before undertaking an overseas assignment, or relocation, to ensure that you fully understand your tax liabilities in all relevant territories.

The expert was Matt Walters of Capital Consulting, a specialist in international tax planning for UK contractors.