Contracting in Europe FAQ

Whether a contractor completely new to the industry or a seasoned professional, you can still have questions about Contracting when in Europe. We aim to answer all basic enquiries here on this page, from informing you as to the best way to pay overseas social security, how to claim expenses that can be claimed right through to state pensions and 91 & 183 day rules. If you need to get in touch regarding clarification or if you have a complex situation, don’t hesitate to contact us on sales@tgcworld.com

Contracting in Europe FAQ?

In certain countries, tax breaks and special arrangements exist for expatriate individuals. In addition to such allowances, you can usually claim some expenses incurred in working overseas, free of tax, from most European countries. As an example, you may be able to claim your travel expenses to and from your home alongside double housing costs. To be eligible for any tax breaks, there are factors that need to be considered. Family Situation, Local Tax Allowances and whether you are domicile or a resident. Each individual country is unique in their particular approach; therefore we recommend that you seek advice on your personal circumstances with regards to the country you are intending to contract in...
While working overseas, it is normal to expect a percentage of your expenses incurred are going to be claimable as tax-free expenses. However, there is no European or worldwide amount that is allowable - each country has different rules and regulations. For example, in some countries you are able to claim double housing costs, but in others this would be seen as a ‘benefit in kind’ and is therefore taxable. It is also worth noting that, if your package includes either a per diem living allowance or monthly allowance to offset cost of living or your company provides free accommodation locally, local tax authorities will not consider tax-free allowances on all aspects. Whichever country you are moving to, EAFS can provide advice and guidance on the most appropriate structure to suit your circumstances, maximising tax free allowances and retaining the highest percentage of your income...
While working abroad as an independent contractor, it is imperative to ensure that you have appropriate international social security cover. In many cases, social security is hugely important from a compliance perspective, as not paying attention to this aspect of your remuneration can increase the potential amount of liabilities for the individual, agency and end client. If you work in another EEA (European Economic Area) country for an EEA employer, then you are commonly insured under the social security laws of the country you work in. However, it is possible within the EEA to gain exemption, in some cases, from local social security via an A1 form if you are being seconded by an overseas (EEA) employer. This enables you to continue payments to the social security offices in the country of your residence; assuming your employer is resident in the same country, rather than paying local social security. Paying social security is a legal obligation in your country of work and the Form A1 provides this legal coverage. A Form A1 is valid for one year and in some countries can be extended annually (with the permission of the working country) for up to 5 years...
While working overseas, consultants are often offered ‘creative’ solutions for the management of their contract income. Some of these include offshore trusts or offshore payments. Given that the EU Savings Directive is still in force, whereby countries are obligated to share information concerning individuals’ savings accounts, there is now even less scope for these types of arrangements to function effectively. Consultants should consequently exercise a considerable degree of caution. Offshore companies are often used as a means to shield money from income tax. While some structures allow this under very specific circumstances, agencies now tend to refuse to pay to offshore bank accounts due to these directives from HMRC, as they are often no more than a thin front for tax evasion and the non-declaration of income. If you are so much as considering an offshore company for efficient structure of tax planning under very specific circumstances, governmental advice should be sought before agreeing a structure. It is not an issue for employers to pay into offshore bank accounts but whether correct payroll taxes and social security deductions have been paid before the net salary is paid to the bank account. In most European countries, trusts are not recognised in the same way as they are in the UK. You will be taxable and liable for social security deductions on all income paid into the trust by your employer. For all intents and purposes, in most countries, income put into a trust is treated in the same way as if it were put into a bank account, and will therefore be liable for the same taxes...
While working overseas, one of the most important issues for contractors and agencies and end clients is the subject of tax compliance. Income tax is due in the country where the income is earned; therefore if you are contracting abroad you will need to ensure that you have a mechanism ensuring tax payment in your country of work. By continuing to pay tax through your Limited Company, you will be remitting tax in your home country, but not in the country where you are working. Although your tax affairs at home will be in order, under this type of arrangement a tax liability will build up in the country of work. In many countries, a chain law exists. Meaning that the tax liability can be passed on to the client you are working for. For this reason, many clients will insist that contractors are paid via an in-country payroll. Contractors operating through UK Limited companies outside the UK are consequently running the risk of being liable not only for unpaid personal income tax, but also for corporate tax, having created a permanent establishment in the country where they are working. It is therefore important to ensure that your tax affairs are in order - both in your home country and in the country where you are working...
While working away from your resident country, it is not always necessary (or in fact possible) to continue paying into your existing pension schemes, or if you do you may not get the same level of investment. There is also a pronounced difference between the state pension and any private pensions. In general, state pensions will either be covered by local social security or through your A1 form. Dependent on the country of work there may be an element of private pension within the social security system and, therefore, you need to be aware of what your entitlement is. In every EU/EEA country where you have made social security contributions your record is preserved until retirement age. If you have made contributions for at least one year in any one country, that country will have to pay you a state pension when you reach retirement age. If you have contributed in any one country for a relatively short period, your entitlement to the state pension will be quite small. In the case that you contributed in a country for less than one year, your contributions will not be lost. They will be taken over by the country where you have made most of your contributions during your working life, or by your final country of employment. As long as you stay within the EU/EEA countries, any time spent contributing to the social security system of an EU/EEA member state will count towards your overall state pension...
If you work overseas within the EU/EEA and you are contributing to the social security system of an EU/EEA country, these contributions will count towards your qualifying years for a state pension. Therefore, if you decide not to make voluntary contributions in your home country, you will not create gaps in your contributions. You should be aware, however, that your record of contributions is preserved in each country of work until retirement age. Your state pension will then be paid out in part by your home country and in part by the other countries where you have worked, the proportions dependent upon how many years are spent working in each. In some countries you may be able to transfer your contributions. You will need to check the country of work regulations regarding transfer of contributions...
Anim pariatur cliche reprehenderit, enim eiusmod high life accusamus terry richardson ad squid.