How about a Contractor Owned ManCo?

[nodric]

This has already been done. At the end of the day, the way things are with this Government and HMR&C at the moment - if you live in the UK and you work in the UK you are liable for tax in the UK.

Hi Lisa,

You're quite correct. The difference here is that this would be a Contractor owned and managed setup. Not some dodgy offshore fiddle as most of the split income system are. It is also not aimed at the UK, as the benefits would be minimal unless you were earning the very high end rates.

The problem in Europe is the very high SS and personal tax levels. There is no SS on dividends, hence a major saving, and corporate tax rates of 10% in Cyprus mean a massive saving over the 50-60% average personal taxes in Europe.

The other major reasons for doing this are:

You avoid having to be self employed in Europe = high personal taxes.

You avoid having to setup a local company = high costs and capital often required.

You share the cost of accountancy, and you remain compliant.

Don’t think we are competition just yet for the UK umbrella market, but who knows

.

[nodric]

For Europe what is required for non UK residents

Operating Company in Cyprus or Ireland to absorb
Employers Social Security Costs at a minimum
Possibility to reimburse expenses

Sub contract local accountant to handle the payroll and social security

Dividends possibly wont work in the Netherlands or Switzerland.

Think of a good Belgian solution for Belgian residents without SPL+ self employed and your venture should succeed

The 30% rule in the Netherlands more or less means little benefit for there. Switzerland is a unique case, and again I think complexities may negate the benefits.

For France and Belgium it would definitely be the way forward. Germany, and the Scandinavian countries I don’t have the knowledge on, but I see no reason why it should not be allowed, as it is a legal IT services company, and is tax transparent and not offshore. Just exploiting EU tax laws & treaties in a low tax jurisdiction.

The main reason individuals don’t do this is the cost and hassle of running it all. It does need numbers to be part of it.

[LisaContractorUmbrella]

Oh OK that makes more sense - we won't have to scrap over this one then

[nodric]

The Details and Registration of Interest

Here’s the deal.

To set this up we have to pay Ernst & Young some money to do all the structural work. i.e. to make sure it’s fully compliant in the EU tax jurisdictions we intend to operate. Expected cost around €2500.

Then we need to approach a managed company formation service. I have the contacts in Cyprus already, and got so far down the road with them. Expected costs for setup €3000.

The monthly running costs are then expected to be around €1000 Euros per month. This is based on quotes I have been given.

Annual corporate accountancy costs are expected to be around €2000.

Summary

Setup - €5500
Base annual costs - €14000

20 Contractors at setup = €275 each. Every new contractor would be expected to pay a joining fee of a similar amount, which would go towards the running costs of the company. This is a lifetime membership fee, and you are free to come and go as you please, as and when your contracts require the service. You remain a member for life, unless you choose to resign.

Annual cost per person based on 20 initially = €700 each! A lot less than the 5-7% per month, asked by the current crop of ManCos.

We then need to factor in accountancy costs for ensuring every member is compliant, and all taxes and SS are paid at the correct level, into the appropriate jurisdictions. Once there are sufficient members, employing a full time tax specialist seems possible.

Bank transfers between EU countries are now free. So no need to worry about paying artificial bank charges the ManCos trumped up each month either!

So what next?

Register your interest, serious interest only, by sending me a PM. If I get enough people showing interest, I will set up a mailbox and contact number to discuss further. If the interest stays high, we’ll set up a fund to pay for the Ernst & Young advice.

If the advice proves that the operating model is sound, then we move forward.

Future Benefits

How about a contractors union OK, I’ve not gone mad
But consider this.

If we have a collective membership in our own ManCo, we start to represent a large body of professional expertise. This gives us the power to represent the individuals in negotiations with agents on rates, and to offer a pot of expertise to those same agents.

Those same agents will want to deal with us, as we will be a tax compliant and fully approved solution. We will offer avoidance of complex setup issues, and enable the contractor to deploy rapidly without concerns of drop out, or legal comebacks in the future.

Agents will also be keen to build a relationship with us, as we will have a proven pot of quality people (does not take long to identify the good contractors). We can also start to build our own database of contractors, and collective skill sets. Being a collective will give us a close working relationship with the agencies, and avoid much of the claptrap we suffer today.

I have already had advanced discussions with 2 of the major agencies, and they have given me their tacit support.

So there you have it. A way to retain much more of your earned income, while making it easier to work in Europe, and at the same time being the start of a powerful contractors association that actually does something for the contractor.

Queue here to sign up

[Fred Bloggs]

I'm not in a position to sign up (just started a new UK contract), but good luck with this, I will watch with interest.

[ASB]

Here’s the deal.

......

I think there are a few things you have not considered.

If the retained funds are distributed in a way that is proportional to peoples incoming effort then this may well mean an IR35 fail for those individuals in the UK (I'm not saying it will only that it could). Bizarrely it could potentially mean that those whose working practices would have put them outside IR35 are no longer outside IR35 due to the contractual chain involved (e.g. there could be an argument that the relationship with the man co might bring the income inside IR35).

There is also the question of worldwide income in the tax regimes. Let us assume somebody gets a partnership share. If they are tax resident in the UK then this is taxable in the UK (whether or not this actually results in any tax being payable is a different matter). The same would be true in any jurisdiction - i.e. that income on a personal level is taxable based upon the local rules. There are also - in the UK at least - special rules related to NI on employment income from overseas entities which do not have a branch in the UK (there can be benefit to a taxpayer).

If it were payable by dividends then these would of course also be taxable in exactly the same way as foreign dividends are currently taxed (generally on the basis of it is simply untaxed income and credit may be obtained under DTA's for tax already suffered - of course there are situations where any tax paid may be considered as fully discharging the tax liability).

It is entirely plausible that the structure you end up with enables the members to gain advantage due to quirks in how the income is categorised based upon where they happen to be resident at the time and the systems in place between the respective the countries.

Equally, given the cost of most "solutions" that appear it may well be that the simple savings that can be achieved in this area make the scheme attractive and viable, particularly considering the capital requirements etc. of incorporation in many EU jurisdictions.

There are considerations for the trading model of the entity itself. For example if ManCo Cyprus was providing services to an end client in Portugal (and that involved a non Portuguese national providing the services there) then there would be an automatic withholding tax of 15% of the gross invoice value. Eventually the Portuguese authorities will issue a certificate of this deduction - should it be requested. This may be reclaimable against local taxes paid - or it may not. Under the UK-Portugal DTA it is difficult but usually possible (obviously it is different DTA's involved in the scenario you describe).

[Magic]

I am on the list of difficult countries because of where I live at the moment but I may be able to add something to this later. (In how it may be possible)

However if I do okay on the next gig in Brussels I know people who may be joining so this would be good for them as they are UK based at the moment.

[nodric]

Many thanks for your input.

I think there are a few things you have not considered.

If the retained funds are distributed in a way that is proportional to peoples incoming effort then this may well mean an IR35 fail for those individuals in the UK (I'm not saying it will only that it could). Bizarrely it could potentially mean that those whose working practices would have put them outside IR35 are no longer outside IR35 due to the contractual chain involved (e.g. there could be an argument that the relationship with the man co might bring the income inside IR35).

If the contactor is not resident in the UK at the time he carries out the contract, and is tax resident in another EU state, then IR35 does not apply. Hector may still want to know what he's up to, but if he is paying tax in another state, Hector cannot double tax! IR35 only applies to contractors taking contracts in the UK. Hector cannot extend UK legislation to Europe, as much as he'd like to.

However, this is complex and needs expert opinion, hence the need for Ernst & Young.

There is also the question of worldwide income in the tax regimes.

Agree with much of what you say. Expert advice is needed. However, the only alternative is to pay high taxes and SS in the EU member state in which you decide to take a contract. Asking Hector in the UK to tax you, as most would prefer anyway, if not an option, as the local tax men want their dibs first!

This is why we need such a solution.

Equally, given the cost of most "solutions" that appear it may well be that the simple savings that can be achieved in this area make the scheme attractive and viable, particularly considering the capital requirements etc. of incorporation in many EU jurisdictions.

You hit the nail on the head. This is the main reason, to simply working outside the UK, while maintaining full tax compliancy. If we can then reduce the size of any tax liabilities, even better!

This is not about UK citizens evading Hector, it’s about enabling them to work easily, and to be taxed fairly.

There is also the problem that in places like Belgium, you also need a University Degree to now work there as either freelance, or to be a company director. Many contractors around their 40s lack such a qualification.

Added to this that each state you work in will hound you for years to come to declare your income, no matter where its been earned, and you may end up paying accountants in several jurisdictions just to keep the local hounds at bay.

withholding tax.

This exists in most EU states, but there are ways to avoid it. Expert advice again needed.

In the end, we have two choices. Pay the local rates and accept the complexities of working in each state, or use a system that is legal, compliant, and effective. I prefer the latter, and cannot believe that such a legal mechanism is impossible to fathom.

Just because the problem is very hard, doesn’t mean there isn’t a solution, and we therefore shouldn’t give up at the first hurdle

I think there is sufficient justification for a few of us to chuck some wedge into a fund to pay for the advice. If it turns out that there is no legal way to do this, then at least we can use this knowledge to better assess our choices in the future.

How much will you spend at the pub, or in eating out this month? More than the 275 Euros per person needed for the advice? I consider this a good investment, and hope others will join me in seeking out a way forward.

Keep the thoughts and opinions coming though, as I am far from having all the answers, or seeing all the perspectives

.

[questiontime]

They then are employed on a base salary in the local country, keeping the local Hector happy, once the 183 day rule kicks in.

Does this mean the ManCo will have a contract with an unrelated local umbrella company?

[nodric]

Does this mean the ManCo will have a contract with an unrelated local umbrella company?

Not at all, unless required by changes in the law, or if there is a benefit. As the contractors will be employees of the ManCo, no further umbrella is required. Remember, this is not to avoid HMRC, it’s to enable you to work in those EU countries that are complex and expensive.

This is the same scenario as if you were working under your own company, but taking a contract in a different country. Perfectly allowed. Once 183 days kick in, even under your own company, you have to pay local tax and SS on salary payments. Dividends continue to be paid in the home country of the company, subject to the rules on permanent establishment and personal residence etc.

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