Contracting in Belgium - A Short Guide to Tax and Social Security

[nodric]

Cont'd

To extend the thoughts in my last post above.

The trusted company does not have to be a UK LTD of course. You could elect to set up a company in any EU jurisdiction, including very tax friendly states such as the IOM. The main issue is being confident that the agency will pay to that location. You could elect to set one up in Cyprus as this is now fully compliant, and only has a 10% corporation tax, and very flexible rules on foreign directors dividends.

Imagine your wife is the sole director of the Cypriot company. She then withdraws the lions share of the contract fees as a dividend into the UK. Tax paid and fully white funds using the double taxation treaty rules between Cyprus and the UK.

You could also retain a good percentage of the funds in Cyprus, and simply use the company to fund many bills and purchases. As long as you declare into the UK any foreign source personal income from salary or dividends etc, you’re playing by the rules.

To be honest, you could use this same structure to avoid paying higher UK taxes as well, while working on UK contracts. Of course the contract with the wife owned Cypriot company would have to still avoid IR35 as she would remain a UK taxpayer etc.

The key thing you are trying to do is legally separate yourself from the bulk of the contract value. No law bars you from doing this, and provided you are transparent in the way you do it, it is fully legal. This is how big corporations do it anyway!

My main aim was to find a way to allow you to earn foreign contract fees via a UK structure, and thereby benefit from the UKs lower tax regimes. With some additional thought, and professional advice, it would be possible to extend this to using a lower tax regime to work UK contracts.

The question is of course, is all the effort and extra cost in setting this up worth the effort, and is the benefit greater than the taxes you’d pay on the income in the UK? For Belgium the answer is an unequivocal YES! For the UK, individuals will have to make that assessment based on the value and sustainability of their contracting career.

[Rantor]

[QUOTE=nodric;1149571For those that missed the news, the BTA ran some newspaper stories and TV news spots claiming to have successfully caught some 800 contractors working on ‘split income’ schemes in Belgium. This resulted in 500 gizillion sheckles being recovered for the local coffers. How true the numbers are no one knows. What is true is that they fully understand how such schemes work, and if they catch you, you’d better be using Truecrypt and a good 7 times wiper. Not such a good idea to keep lots of paper records and emails of your wheeling and dealing lying around!
.[/QUOTE]

This was interesting as it was a full blown press campaign. Unless I missed it, it was pretty much only in the flemish media with some cd&v bloke giving a spiel.

I can't fathom out the scale of this - I guess 800 could be the connexioneers who signed up for that deal, plus a few other known busts. On the other hand....who knows.

Your comments regarding records and forensic recovery - speculation or are they really doing this? If it is the latter, I would be very impressed indeed

[nodric]

Your comments regarding records and forensic recovery - speculation or are they really doing this? If it is the latter, I would be very impressed indeed

As you said, no one knows the extent of their successes, or otherwise!

What I do know for a fact, is there was a dawn raid on Ntrinsic in Brussels some time back, and they seized copies of all documents, and imaged all HDDs. I mentioned this in a post a while back.

I also am aware that the BTA have put in place new rules about bank transfers to OECD listed tax havens, with new reporting requirements for local agencies who send more than 100K a year to such destinations via ‘management companies’.

How likely are you to see your front door collapsing as big boots trot in, is anyone’s guess. In reality if they do come unannounced, it will be less aggressive, but nevertheless they’ll be seeking copies of useful information…

A normal controle [sic] is notified in advance in writing, and is not a forensic examination, so less to fret over.

A wise man however would ensure he has a good shredding strategy for snail mail items and other printouts, and that anything electronic is suitably secure. Have a read about plausible deniability when creating hidden containers (containers within containers) with Truecrypt or similar.

[Rantor]

A wise man however would ensure he has a good shredding strategy for snail mail items and other printouts, and that anything electronic is suitably secure. Have a read about plausible deniability when creating hidden containers (containers within containers) with Truecrypt or similar.

Indeed, Truecrypt is great until you realise you really, really have forgotten the damm password

[wind]

Hi nodric

Thanks for the great read, and patience, you should write some consultant cookbook and monetize on it
can you elaborate how is your latest suggestion different than
1. having a company outside Belgium (For example Cyprus, Luxembourg) while using a fiduciary/shareholder (instead of a partner owned company) ?
2.Working as a freelance directly for your trusted partner's company (without having to create your own UK based company). Anyway as a non owner/shareholder, nobody will attribute the company's income to you.

I was consulting a business lawyer the other day, and he specified that each structure can be challenged. and I am wondering why do you think that the structure you suggested is more sound than the above 2 options or any similar variation ?

Thanks in advance.

[Brussels Slumdog]

Structure that works in Belgium

Thanks for the great read, and patience, you should write some consultant cookbook and monetize on it
can you elaborate how is your latest suggestion different than
1. having a company outside Belgium (For example Cyprus, Luxembourg) while using a fiduciary/shareholder (instead of a partner owned company) ?
2.Working as a freelance directly for your trusted partner's company (without having to create your own UK based company). Anyway as a non owner/shareholder, nobody will attribute the company's income to you.

I was consulting a business lawyer the other day, and he specified that each structure can be challenged. and I am wondering why do you think that the structure you suggested is more sound than the above 2 options or any similar variation ?

Thanks in advance.

What some contractors need is a structure for non Belgians who call Belgium home. The main problem is that
the current independent set up was not designed for short term IT contracts but for plumbers and electricians who work locally all their life. Instead of challenging the structure why don’t they adopt the Dutch or Swiss Structure. End of problem.

[nodric]

What some contractors need is a structure for non Belgians who call Belgium home. The main problem is that
the current independent set up was not designed for short term IT contracts but for plumbers and electricians who work locally all their life. Instead of challenging the structure why don’t they adopt the Dutch or Swiss Structure. End of problem.

I think I've said many times that the BTA should adopt something like the Dutch 30% rule, and for the most part, everyone would be happy, and play by the rules.

Problem is that most countries that have operated 'black economies' for so long (and Belgium is amongst the worst), can't break away from the need they have created for high taxation.

By ‘black economy’ for those that don’t understand, means one who has tolerated tax avoidance, and whose residents have exploited tax loopholes to avoid paying, with little or no enforcement. For years employees and the like have been ‘backhanded’ in numerous inventive ways to avoid showing a high taxable income.

Now the powers that be are trapped in their high tax economy, and they’re frightened that trying to change to a low tax economy will cost them revenue, when in fact the reverse could be true. i.e. Make it good value to work and do business here, and people will come and openly declare their income.

Don’t hold your breath however!

If you look behind all the ‘Blue Chips’ based in Belgium, you’ll find they all have created structures to ensure the bulk of taxes are paid in other countries, thereby avoiding the Belgian levels. Sure they still pay significant amounts here, but the vast majority of their profits are funnelled to more attractive locations, the Netherlands by example.

I guess that’s what socialism gives you, high tax and massive public borrowing. I wonder if Gordon feels any remorse?!? Sorry tangent

[nodric]

Thanks for the great read, and patience, you should write some consultant cookbook and monetize on it
can you elaborate how is your latest suggestion different than
1. having a company outside Belgium (For example Cyprus, Luxembourg) while using a fiduciary/shareholder (instead of a partner owned company) ?
2.Working as a freelance directly for your trusted partner's company (without having to create your own UK based company). Anyway as a non owner/shareholder, nobody will attribute the company's income to you.

I was consulting a business lawyer the other day, and he specified that each structure can be challenged. and I am wondering why do you think that the structure you suggested is more sound than the above 2 options or any similar variation ?

Thanks in advance.

Aye lad maybe I should make some money from it, but most contractors are fickle and damned hard to part from their cash

To answer you.

You could use a nominee director or similar, but the problem comes when you want to access the funds. The key as I mentioned is to separate you from the dosh, until such time you are outside the clutches of the BTA, or whoever else you wish to avoid.

Once the nominee director pays you the cash, you have to declare it somewhere. If this is in the high tax jurisdiction you’re living or working in, then you’re buggered.

This is what management companies have been doing for years, so really it is no different that using one. If they keep all the cash, then you’re fine, but that’s not what you want them to do How long would you trust a 3rd party to hang onto your money for? and how much would you be happy leaving with them? I thought so!

Working as a freelance self employed chappy for the trusted company should also be fine. It’s just most IT Contractors already have a LTD, so I just skipped over that.

The idea here is to offer a solution to single contractors. The nominee root has no commercial benefits for a single person, as the costs to set it up and maintain it are very high. Circa 30K a year (I looked into it). Whilst it would be an ideal vehicle for a group of contractors, you still have the issue of separation from the funds, and how to access them. As we’ve seen, the EBT and loan schemes that have been around a while to try and provide that vehicle, have all been found to be unreliable.

So for now, if you are coming to work in a high tax location like Belgium, consider the two company approach, assuming you trust your wife or whomever with your money

[wind]

Thanks for the answer

Aye lad maybe I should make some money from it, but most contractors are fickle and damned hard to part from their cash

Indeed we are , However it didn't bother me to consult with a lawyer for 85 Euro/hour, and here I am getting more concrete answers

To answer you.
You could use a nominee director or similar, but the problem comes when you want to access the funds. The key as I mentioned is to separate you from the dosh, until such time you are outside the clutches of the BTA, or whoever else you wish to avoid.

Once the nominee director pays you the cash, you have to declare it somewhere. If this is in the high tax jurisdiction you’re living or working in, then you’re buggered.

Once the contract is due I will be happy to declare it to whatever country of my future contract, making sure that this time I choose the contract more attentively...

This is what management companies have been doing for years, so really it is no different that using one. If they keep all the cash, then you’re fine, but that’s not what you want them to do How long would you trust a 3rd party to hang onto your money for? and how much would you be happy leaving with them? I thought so!

Good point.

Working as a freelance self employed chappy for the trusted company should also be fine. It’s just most IT Contractors already have a LTD, so I just skipped over that.

Paying the costs of two companies seems excessive to me, that's why I asked

The idea here is to offer a solution to single contractors. The nominee root has no commercial benefits for a single person, as the costs to set it up and maintain it are very high. Circa 30K a year (I looked into it). Whilst it would be an ideal vehicle for a group of contractors, you still have the issue of separation from the funds, and how to access them. As we’ve seen, the EBT and loan schemes that have been around a while to try and provide that vehicle, have all been found to be unreliable.

I admit I didn't get much deeper than reading but online services like Codan and some other suggestions I heard offline, suggest that it is much lower than 30K, More like 1500 Quid/Year. So what am I missing ? Where does the 30K come from ?

So for now, if you are coming to work in a high tax location like Belgium, consider the two company approach, assuming you trust your wife or whomever with your money

It seems I already work here, I just try to decide how am I going to get payed here

[nodric]

Thanks for the answer

I admit I didn't get much deeper than reading but online services like Codan and some other suggestions I heard offline, suggest that it is much lower than 30K, More like 1500 Quid/Year. So what am I missing ? Where does the 30K come from ?

I went a lot further down the path than investigating company formation, and this included taking advice from two ‘big X’ houses.

The crux of the problem is that you need to have a bona fide operating base, and this must be able to demonstrate it is actually doing some work. Simply registering your company in umbo bongo land, does not allow you to pay all your corporation taxes there. See my many comments about ‘Centre of Economic Interest’ etc.

To ensure you have a bona fide structure, you need an office, and staff that actually do some work. You also need a local resident director. All this is commonly known as a managed services company, or similar.

I looked into setting this up in Ireland, and although they have a 12.5% corporate tax rate, this is a reduced rate from 25%, and has to be applied for. Special requirements exist, not least the carrying out of some actual trade in Ireland. Company law states you have to have at least one director resident in Ireland as well.

I also went into detailed negotiations on a similar structure in Cyprus, given it has a standard 10% Corporate tax rate, and zero tax on foreign director dividends. Although all EU countries will slap a standard withholding tax on your foreign dividends anyway, the UK included!

Once you start to add the annual cost for a managed office (REGUS type affair), phone line answered in your name with call and message forwarding, email and snail mail forwarding, and some basic secretarial services, the costs starts to mount. All these things are needed to establish that the company actually has a real base, and does some actual local work that provides local employment, all of which are tests of it’s Centre of Economic Interest.

You then have to pay an annual fee for your local directors to sit on your board, and the board has to meet at least once a year and make some minutes. In Ireland there are limits of how many companies a director can sit on, currently 25. Therefore the revenue that a director can generate from being a nominee is limited. Typical cost in Ireland is 12500 Euros per year for a nominee director.

You also then have to come up with some way of controlling the company, otherwise how do you access the funds/company bank account, and pay bills etc. This is done by way of a power of attorney, whereby the local director/s ask you to run their company for them. Another fee is due for this. However, I did wonder if this could be seen as linking you to the income of the company. I never got an answer on that point.

I also looked into how the Cypriot company could pay funds for services to a company say in the BVI. This is possible, and the more relaxed rules in Cyprus would allow this. But then you need to set up trustees to run the company in the BVI if you want to be disconnected from it. OECD and all that!

Anyway, the list goes on. Great if you have millions to salt away, and need a vehicle to manage such funds, but for a one man band, it isn’t ever going to make sense.

This is what led me to think about a contractor owned management company. Shared costs etc.

The main problem still exists however, how to separate the major capital from the individual, in such a way the individual can gain access to that capital, and yet not worry about the management company legging it with their pot of gold.

Typically this involves investing it in some insurance/pension plan, that can be accessed anytime you like, or left to gain interest and withdrawn later. The problem with this is that should you need a decent slice of this wedge monthly to pay bills, then it simply is not viable as once you receive the funds, you have to declare them.

Even if you leave most of the cash in, as soon as you withdraw funds you have to declare it wherever you are tax resident. There are usually high charges for managing this sort of fund, and regular withdrawals are discouraged as the managers of the fund loose significant interest if you do! You’ll probably be charged an arrangement fee each time you withdraw as well, and probably be limited to one withdrawal every 3 months. Sound like iTecs anyone

Connexions, Access, and others of a similar ilk, use Switzerland, IOM, or perhaps a Caribbean or Indian Ocean island to filter the funds into an offshore account. However, their methods while covering their arse, do not protect the individual from harm. Declaration of Worldwide income and all that. Anyone who dealt with Connexions of old will tell you how exposed and vulnerable they were when they collapsed.

So for now, I see the dual company approach (or LTD plus freelance) as the best option for individuals working in Europe, but wanting to pay tax in their home country (usually the lower taxed UK). It’s legal, and fully compliant.

A possible, but messy solution for running a management company for a group of contractors could be.

Management company signs contract with agent and receives 100% of funds. Contractor LTD has separate sub-contract and receives say 20% of the fees. Wife of contractor then becomes a shareholder of management company and receives the balance as a dividend into the UK, paying any taxes due. e.g. Management company is in Cyprus, pays wife a dividend with 0% tax, and then UK take/steal their standard withholding tax. A small fee is charged on the dividend to cover the operating costs of the management company.

Messy, but workable assuming wife is not a director of the sub contracting LTD, and is a basic rate tax payer. Again the principal being separating you from the major capital income, and paying in a way to avoid you being taxed on it.

If enough contractors are interested in sharing the funding of Ernst & Young, or KPMG, to the tune of about 5-7K Euros for advice on how to structure a tax efficient management company based on the research in this thread and others, then I'm all ears. As I said in my last post, damned hard to get contractors to part with their hard earned pennies