Guide to International Contracting:

Transcription

1 Guide to International Contracting: A Guide for: Internationally Mobile Employees on assignment in the European Economic Area Internationally Mobile Employees on assignment in the United Kingdom

2 INDEX Foreword General Rules Regarding Local Tax Residency and Double Taxation Treaties Employment Management Companies I-PAYE Solutions General Service Outline Compliance EEA Countries covered by EU Social Treaty Austria Belgium Bulgaria* Cyprus Czech Republic** Denmark Estonia** Finland France Germany Right to Work in the EU Greece Hungary** Iceland Italy Latvia** Lithuania** Liechtenstein Luxembourg Malta Netherlands Norway Poland** Portugal Republic of Ireland Romania* Slovakia** Slovenia** Spain Sweden Switzerland United Kingdom In general individuals born in the United Kingdom have an automatic right to work in any other EEA Country. *Individuals from these countries do not have an automatic right to work in the United Kingdom. **Individuals from these countries must register under the Worker Registration Scheme. Taxation and Social Security Income Tax Social Security Chain of Liability and Contractual Indemnities

3 Foreword One of the first challenges any worker must consider when deciding to work outside the United Kingdom is the type of payment solution they should operate through and whether this will be acceptable to the end client and / or intermediate agency. Confusion over who is actually paying for the services of the individual has lead to a misunderstanding of the application of the model OECD Double Taxation Treaty. This in turn has lead to the misuse of UK Personal Service Companies and Offshore schemes. Local Taxation Authorities are now applying increasing pressure upon end clients to ensure that the individuals working and provided through a third party are compliant with the Local Tax and Social Security regime. In some cases UK Agencies are being refused the opportunity to place workers due to the use of the following structures by the workers they have placed, which in most cases have resulted in under or non payments of Taxation and Social Security to the Local Tax Authority. UK Personal Service Company or Non Specialist Umbrella Company Self Employment Schemes, Partnerships and Limited Liability Partnerships. Offshore Payment Schemes, including Loans and Employment Benefit Trusts. In all cases the contractor should be directed away from any of the above and directed to a compliant product that ensures that the correct amount of taxation is paid to the correct Authority and that Social Security is paid in accordance with the EU / EEA or Reciprocal Agreements in place.

4 General Rules Double Taxation Treaty and United Kingdom As a General Rule the 183 day section of the OECD Model Double Taxation Treaty will not prevent taxation being due to the tax authority in the country in which the duties are performed, if The client is paying directly or indirectly for the services; The client is based in the country in which the services are provided; The individual is not on a business trip directly connected to the work and continuing employment with a client based in the United Kingdom. Most countries have defined rules regarding what is and what is not a business trip. There is also a second issue to consider and that is whether a UK liability may also arise on the same income. Only if the UK standard non-residency tests are satisfied will the UK Tax position not need to be considered. The UK Authorities have undertaken an exercise to identify individuals who have not declared their earnings that have arisen outside the UK, but have remained tax resident in the UK. The failure to report their worldwide income will result in the payment of the taxation they have evaded plus severe penalties and interest charges. The UK HM Revenue & Customs have concluded many agreements for the exchange of information with their counterparts in Europe and have even acquired information from so called tax havens on individuals who hold accounts or have redirected income offshore. There is a very fine line between Tax Avoidance which is the legal structuring of tax affairs to reduce the levels of Taxation payable and Tax Evasion which generally is the act of under declaring Income and Gains whether deliberate or not. If an individual remains Tax Resident in the United Kingdom, then they remain taxable on their worldwide income, taxed or otherwise, and not just on the income arising in the United Kingdom. HMRC 6 contains the interpretation of the current case law that has been established over many years by the UK and International Courts. Even though HMRC may issue a NT No Tax coding to an individual this does not mean that they have accepted that the individual UK Tax Exempt Status, it simply means that they will test his or her position via the UK Self- Assessment system. New Statutory Legislation is expected in the 2013 Finance Act to clearly define individuals resident, ordinarily resident and domiciled in the United Kingdom.

5 Employment Management Company An Employment Management Company (EMC), may be described as an Umbrella, a Payroll company, or an intermediary and there are many to choose from in the United Kingdom. An EMC that operates internationally and complies with all UK and local legislation is less common, many operate on the basis that the UK only position is considered with local compliance ignored either in part or entirely. A suitable EMC should remunerate or make payments to individuals in the following ways. Salary Expenses Other Employment Income / Payments in Kind Upon the relevant earnings the EMC would deduct local Taxation, Local Social Security and this would be withheld from the worker at source and paid over to the relevant authority on an ongoing basis. The EMC would look to ensure that if Overseas Taxation payable is lower than what would be payable in the United Kingdom, that additional top up tax is retained. The EMC would also look to see whether remaining in the UK Social system is advantageous or local Social Security is preferable. This is based upon long term intentions and not just short term costs. The EMC, where required, would be registered as an Employer with the Local Tax Authorities or if no registration is required have access to Local Accountants to ensure the Taxation and Social Security Obligations are satisfied. Any EMC who is trading internationally should be able to prove: That they have a local registrations where necessary; That they hold a tax withholding account, where required; That they deal in multiple foreign currencies. That they have a history of settlement of Taxation and / or Social Security with the local Tax Authority, where necessary. That they have an in house International Taxation Director, not just a team of salespeople. That they have experience in each jurisdiction.

6 I-PAYE International Solutions I-PAYE was formed in 2005 and over the months and years since we have been providing compliant payroll solutions to individuals working in the UK and UK individuals working across the European Economic Area. The main Employment Management Company I-PAYE Limited position in each European Country is: - Wage Tax / PAYE Set Up Denmark Germany Guernsey Italy Netherlands Norway Portugal Republic of Ireland Spain Sweden United Kingdom Tax Payment Procedure Established Bulgaria Finland France Iceland Malta Poland Romania Switzerland In Development Austria Belgium Cyprus Czech Republic Estonia Greece Greenland Hungary Latvia Liechtenstein Lithuania Luxembourg Slovakia Slovenia Turkey Even if I-PAYE does not have a requirement to withhold and pay local taxation directly, in all cases the relevant amounts of taxation are withheld for onward transfer at a later date. Whenever it is possible, I-PAYE will register the individual with the local tax authority. However, due to identity requirements, many countries now insist on meeting up with the relevant individual during which they are generally asked to provide their passport and confirmation of where they are staying locally. In the majority of countries it is preferable to continue contributing to the UK National Insurance system, and as such a certificate of continuing liability to the UK National Insurance scheme (A1, A2, E101 or E106) is applied for and obtained, thus removing the liability to local Social Contributions. The UK is generally considered a low National Insurance regime, but many countries have capped their National Insurance. On 1 May 2010 the new social treaty EEC 883/2004 was enacted by the United Kingdom and many European Countries. However, not all countries have adopted the new European regulations.

7 I-PAYE Service Key Facts: Individuals become employees of I-PAYE Limited, a UK Registered Company. Employees are contractually entitled to a guaranteed salary, whether we are paid or not. Employees are contractually entitled to agreed fixed allowances to cover their commuting, living and other costs overseas. Employees can be paid in GBP, EURO, NOK or US Dollars. However, we do pay out in the currency that we invoice. All payment advices are in the payment currency, for easy reconciliation. All employment records are available for relevant authority and end client audits. All invoices will be auto delivered by PDF. I-PAYE Limited will undertake all necessary compliance for each of its workers. However, in some cases the individuals may be obligated to deal with the overseas authority directly themselves. I-PAYE Limited will ensure that all payments comply with local and UK Legislation. I-PAYE Limited is happy to work with you to achieve an acceptable placement to the relevant end client. I-PAYE Limited does not charge the agency anything for its services. The fees are charged out of any savings we achieve in the efficient remuneration package we put in place for our employees. I-PAYE Limited will agree with each worker a structure of payments to maximise their net income, whilst complying with all relevant legislation. Who would benefit from a referral to us? UK and other EU Nationals who live in or have made the United Kingdom their home, and are to work for an end client based in the EEA, excluding the United Kingdom. Individuals must have been habitually resident in the United Kingdom prior to departure, typically the competent authority, which in our case is the United Kingdom HM Revenue & Customs, will check that the UK is really their home and centre of life. EU Nationals who are habitually resident overseas, but are coming to work in the United Kingdom for a client based here. Each case must be viewed on its own merits and we will gladly speak to any interested candidate and insist that any individual is interviewed by us, typically over the telephone, to ensure that they are and we are suitable for working together.

8 Compliance I-PAYE has considerable experience complying with United Kingdom and other country compliance requirements. Whilst the employing company has its own compliance requirements each individual employee has their own compliance requirements with both the United Kingdom and the country in which they are working. Compliance would include: Registration and Submission of a UK Self Assessment. Under HMRC guidance any individual working overseas must complete a self assessment to report the overseas income and also it is the mechanism for claiming credit for overseas tax paid. I-PAYE European Team will assist and advise on this. Registration with the local tax office in the country in which they are working Most countries insist that a local tax return is completed. Each country is different and this point is explored more on the specific country guides. Confirmation of continuing liability to UK National Insurance I-PAYE European Team will advise and apply for the relevant A1 or E101 and will automatically apply for the A2 or E106 once the anniversary date of 12 months and 24 months respectively has passed. Overseas Tax and Client Audits In recent years I-PAYE has been audited by: German Tax Office Netherlands Tax Office Norwegian Tax Office Deloitte s LLP on behalf of AGIP KCO NLI Wage Tax / PAYE and Social Security I-PAYE will withhold sufficient Income Tax and Social Security to be paid directly on behalf of I-PAYE to its wage tax account or on behalf of the worker to their Tax Account as required locally and in the UK.

9 United Kingdom Taxation and Social Security Income Tax Simple Facts: Individuals will remain tax resident in the United Kingdom in most circumstances if the UK remains their habitual residence. HMRC have issued detailed guidance in their booklet HMRC 6, which is based upon established case law instead of a legislative definition. A new statutory definition of residence will come in to law on 6 April Generally, United Kingdom Nationals, individuals who live in England, Northern Ireland, Scotland and Wales, will be taxable on their worldwide income no matter where it arises. Credit for overseas taxation is either given under the relevant double taxation treaty or unilaterally by the UK Tax Authorities. Tax Credit Relief is restricted to the amount of taxation that would have been paid on the same income if it was sourced from the UK. Tax Credit Relief must be claimed on a UK Self Assessment. Only in circumstances that a potential double taxation arises, namely the same income may be taxable under the rules of the United Kingdom and the country in which the individual is working, would the relevant double taxation treaty be used as a tie breaker. Generally, the double taxation treaty has no relevance in the taxation of employment income as the country in which the individual is working has, by right, the first taxing right. The 183 day rule that sits within some local jurisdiction rules and the double taxation treaties is often mistaken as being that no tax is payable locally for 183 days. This is not the case. Social Security Simple Facts: Social Security by default is payable from the first day for any work undertaken in the foreign country. Social Security is payable both by the Employer and Employee. Local Social Security can only be avoided if a relevant and valid certificate of exemption is held confirming that both the Employer and Employee have elected to remain covered by their Home Authority. On 1 May 2010 regulation EEC 883/2004 was adopted by the majority of EEA Countries that harmonised the benefits available to employees and also slightly altered the rules regarding posted workers. For individuals working in two or more countries the default position has also altered to the country in which they live as opposed to the country in which their employer is based. This means that many cross border workers may be paying social security to the wrong authority, as will be their employer.

10 From 1 May 2010 any overseas authority can request another authority to pursue a Social Security debt on its behalf. Chain of Liability and Contractual Indemnities The European Union has sought for each member state to implement a chain of liability to pursue any party in the contractual chain. Most individuals are aware of the chain of liability in place if work is undertaken on behalf of a Norwegian or Dutch client, but careful consideration must be given for other jurisdictions. Many service agreements contain clauses that hold the end client safe from any future liabilities, should the local authority seek to pursue a debt for unpaid tax and social security. It is vital that any agency dealing with an overseas client in the EEA is able to provide proof of local compliance. In the United Kingdom the chain of liability is only enforced in situation where the agency has been involved with a Managed Service Company. There is no chain of liability under general Tax and / or Social Legislation.

11 Notes: Main Technical Contacts: If you are struggling with a technical issue on placing an IME in Europe or the United Kingdom then please feel free to give us a call on

12 Professional Membership and Accreditations Affiliate Member of The Association of Professional Staffing Companies Member of the Energy Industries Council Audited and Approved Member of Professional Passport The Employment Agency Movement Approved Service Provider Head Office Address Unit 2, Puma Court, Kings Business Park, Knowsley, L34 1PJ Regional Office Address 72 Carden Place, Aberdeen, AB10 1UL Head Office Telephone 0044 (0) Regional Office Telephone 0044 (0) General Fax 0044 (0)