Continue running company from abroad for one year before returning to UK

[newcontractor08]

Hi,

I'm looking for advice on a situation I might be in from the end of his year, and have struggled to find much about this exact situation online.

My partner is applying for a Master's course based in Italy, and if she gets it, we would like to move there for the duration of the course (one year).

I am an IT contractor and have been running my own limited company for nearly three years. My hope is that I could continue contracting through my limited company while out there, working remotely for U.K. Based clients (with the odd trip back as needed).

Is this possible or would there be complications? I'd rather avoid the hassle of setting up an Italian company if possible, especially as its most likely only for one year. I also wouldn't be surprised if potential clients could only work with a UK based Ltd.

One thought that comes to mind if this is tricky for some reason is that perhaps I could use an Italian umbrella company to invoice my U.K. Limited company, and then I invoice clients through my UK company - so effectively subcontracting/employing myself, simplifying the set up and accounting etc by using an umbrella. I don't want to get onto dodgy legal ground though!

In terms of taxation, I'm obviously not looking to do this for tax reasons and if I have to pay more tax for a year as a result of this for whatever reason, so be it - but if there's advice on how I could lessen this, that would be handy - for example, could I take out a large dividend before moving and live off that while away?

I've asked my accountant for his input but appreciate he probably won't know it all so any further input or experience would be much appreciated!

Thanks,
Tom

[borderreiver]

You might be able to use the UK limited for UK clients (though the Italian taxman will surely claim your company is now an Italian resident company and hence liable for Italian CT) but the main issue I think is that you yourself will definitely become tax resident in Italy (as well as remaining tax resident in the UK), so you will have to pay into things like the Italian social security system, for example.

Plus, every penny you extract from your UK limited (whether dividends, income or whatever) will have to be declared in Italy as well as in the UK or you will presumably be suspected of tax evasion in one or the other country.

Definitely a case of getting professional advice before going ahead with this.

[newcontractor08]

Definitely a case of getting professional advice before going ahead with this.

Totally agree - do you have any thoughts on who the right kind of person to approach for professional advice might even be?

The hits on google look like they are for people looking to have off-shore companiess to pay less tax in a potentially dodgy sense, which isn't what I'm after - I'm happy to pay whatever tax is proper, just want to ensure it's all above board and that I'm not unnecessarily paying too much!

[Sue B]

As has already been said, you may continue to use your UK Ltd Co but whether you should is another matter and in most cases, whilst it is technically possible to use a UK Ltd overseas, it is inadvisable.

If the contractor is the Ltd Co (as is the case for most PSC's) and the contractor is in Italy, then the Ltd Co would be deemed to have a place of management in Italy and therefore a permanent establishment in country. This would bring the profits of the company, as much as is attributable to the work carried out there at least, into the scope of Italian taxation.

Subsequently, any salary or dividends paid to the employee would also be taxable in Italy as they have been paid by an entity which is resident in Italy.

There is also social security to consider. The default for Social Security contributions is that they are due where you work from day 1.

However, under the reciprocal agreement in place with UK and Italy, National Insurance contributions can continue in the UK if an A1 certificate is obtained by the employer back in the workers home country. Workers should look to continue paying NI in the UK to protect their on-going benefits and future insurability in the UK.

Unfortunately most (although not all) UK Ltd Co’s are unlikely to obtain A1 certificates for their employee, as they would fail the significant trading presence rules, where at least 25% of the company’s work and income is derived in the UK during the overseas contract.

No A1 Certificate means Italian social security.

Your options are either, become self employed in Italy or set up an Italian Ltd Co, both of which would be expensive, find an Italian umbrella or, use a UK umbrella company who has a registered, Italian PAYE.

There is more to it that this, but these are the starting points. If you have any further queries please feel free to ask.


HTH

Sue

[newcontractor08]

As has already been said, you may continue to use your UK Ltd Co but whether you should is another matter and in most cases, whilst it is technically possible to use a UK Ltd overseas, it is inadvisable.

If the contractor is the Ltd Co (as is the case for most PSC's) and the contractor is in Italy, then the Ltd Co would be deemed to have a place of management in Italy and therefore a permanent establishment in country. This would bring the profits of the company, as much as is attributable to the work carried out there at least, into the scope of Italian taxation.

Thanks very much for the detailed response Sue, this makes sense - so I'd effectively be paying corp tax in both the UK and Italy? Sounds like the thing to do would be to make my current Limited company dormant for the duration of my time in Italy.

Your options are either, become self employed in Italy or set up an Italian Ltd Co, both of which would be expensive, find an Italian umbrella or, use a UK umbrella company who has a registered, Italian PAYE.

This is good to know - as it's only for a year, I'd be happy to take the hit of using an umbrella for a year to save on hassle - it sounds like the Italian tax system is quite bureaucracy heavy, so not really worth the effort for one year!

The UK company with Italian PAYE sounds like the most appealing option, as my clients would most likely be UK-based so I imagine this would save hassle for companies worried about interacting with foreign company and with payments needing to be made internationally.

Is this something your company provides, or if not do you have any recommendations?

There is more to it that this, but these are the starting points. If you have any further queries please feel free to ask.

Thanks!

[Sue B]

You're welcome.

You wouldn't have to pay double CT, but you would have to account for Italian CT first and then apply the foreign tax credit against the UK CT liability. This requires careful reporting to ensure you can prove the correct payments were made in Italy.

We do provide an Italian PAYE model, and you would be welcome to contact me via PM if you do want further information on this.

Kind Regards

Sue

[borderreiver]

Totally agree - do you have any thoughts on who the right kind of person to approach for professional advice might even be?

I think Sue has made a couple of good points so you could start with her company

You'd probably best register as self-employed in Italy (bureaucratic, and you'd probably have to register for VAT since the Italian VAT threshold is either zero or close to zero turnover, ISTR) or use a compliant umbrella (less hassle but a bit less take home I imagine).

I'd probably go umbrella myself even though I probably have enough Italian to cope with the bureaucracy.

[newcontractor08]

I think Sue has made a couple of good points so you could start with her company

Indeed!

I'd probably go umbrella myself even though I probably have enough Italian to cope with the bureaucracy.

I think is the route I am going to go if this does happen - if it were a longer period away, I would investigate more tax efficient routes, but for one year (some of which I may not be working anyway), I'd rather avoid any excess hassle!