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Update on operating a Limited Company Overseas

UK contractors are scanning the globe in search of more lucrative work opportunities. Where previously other European countries were the mainstay for UK contractor assignments, recent years have seen an expansion outside of the Eurozone for skilled workers. Poland, Germany, Switzerland and Norway remain key destinations for UK contractors, with new lands of opportunity to bridge the skill gap popping up in countries as remote as Brazil and Chile.

The prospect of working abroad is always alluring but, without the right advice, contractors can find themselves in deep financial water, with a headache that no aspirin will dissolve.

With more UK contractors flocking overseas, the question of the best employment structure to manage their legal obligations raises its proverbial head. Habitually, contractors have engaged their Public Service Company (PSC) to work whilst in the UK but fall into the trap that they can continue to use this structure overseas. Contractors that engage their PSC for overseas assignments are often unaware of their tax liabilities. If you are working overseas via your own limited company, you and your company may end up liable for tax in your home country and your host country. Mismanagement of this situation will result in financial penalties plus criminal conviction that could have been avoided with the right advice up-front.

The most important thing is to consider where the PSC income is generated, as this will establish the tax residency of your company. If the majority of its income is generated in the host country, irrespective of whether less than 6 months (183 days) there, your company will be deemed a tax resident of the host country.

No more so is this predicament evident than in the recent exposure of Ryanair pilots who have fallen victim to UK and German tax investigations over complex engagement structures imposed on them by the budget airline.

Newly recruited pilots are instructed to set up their own Irish Limited Company, regardless of their home country. Out-sourcing to Freelance contracted pilots in this way, Ryanair alleviates itself from employment benefits to it pilots such as holiday and sick pay. However, the use of an Irish PSC to employ pilots based overseas has tax implications not understood by the pilots in question, leaving them exposed. Despite given no control over the governance of the way tax was being paid, it is the pilots, not Ryanair, who are now being investigated for failure to pay taxes in the correct jurisdiction. Aside from the financial implication of back tax, the pilots have reported undue stress and anxiety because of the investigation. Some are facing tax bills as high as €40,000, putting their own assets at risk.

Regardless of the tightening of legislation affecting how contractors are engaged, there is no deterrent for the rise of the flexible workforce. Contractors, more than any other demographic are adaptable and resilient to change, so a new set of rules will not phase them into submission but drive them forward in their quest for freedom. This is Darwinism on speed!

The gig economy is not going away and, whilst there exists a discrepancy between business leaders and employees with regard to intent, the workforce is leading the way. The 2017 Mercer study of Global Talent Trends revealed that contracting as a career choice is on the rise. It’s a double whammy – Employers who embrace a flexible workforce will benefit from access to more skilled workers to meet the varying demands of their business without the permanent overhead, whilst skilled workers benefit from a higher rate of pay and more flexible working.



Ray WalkerFounder and
Managing Director