So here’s the mad idea for the week. 
A ManCo owned through shares, and limited liability partnership [LLP], by contractors. The ManCo is based in a tax efficient, but onshore EU jurisdiction. Ireland and Cyprus are favourites.
After working in Europe for years, and having to dodge and weave through complex taxation rules, usually to avoid getting clobbered by the local extortionists, otherwise known as the tax man, I have done much research into how to trade legally, and avoid such high costs.
I’ve had my share of involvement with most of the ManCos in this space, and all, almost without exception, are either illegal, or just plain dodgy. Many have failed over the years, and it’s the contractors who have got burned, and either lost monies paid over by the agency, or had the local Hector all over them for monies due on illegal avoidance.
So how could this work?
We need a managed LTD CO in the EU. If we stay in the EU we stay within tax laws, and benefit from Double Taxation treaties etc, and avoid undue attention from different Hectors looking at the offshore havens
We choose a low tax EU country, and incorporate a managed company in that location. (Ireland 12.5%, Cyprus 10%) Directors are nominee, and the concept of a managed company is that real business is carried out in that jurisdiction. This is handled by the managed service providers, ensuring the company maintains its ‘Centre of Economic Interest’ in that jurisdiction. They do this by having offices there, and by having certain duties carried out by their staff. e.g. Directors meetings, administrative and secretarial services, a local phone and fax number etc.
Contractors then become non executive shareholders in that company. They are registered as expat experts wherever they work, enabling Social Security to be paid back in their home country (usually the UK, as this still has one of the lowest levels in Europe). They then are employed on a base salary in the local country, keeping the local Hector happy, once the 183 day rule kicks in.
The balance is retained profit in the company, so is not taxable in the country in which the services are delivered, and benefits from the low tax regime in the country of formation. Dividends are then paid to the shareholders. In most cases taxes are not payable on foreign dividends in your home country, provided tax has been paid in the home country of the company, at their preferential levels Double Taxation Treaties are useful sometimes.
Now before you all run off screaming BN66, that’s a ruling that affects the UK, and not Europe. This is not some IOM tax fiddle I am proposing. The aim here is to provide a low cost, safe and legal, tax efficient structure for those contractors wanting to take short to medium term gigs in Europe, without having to worry about local accountants, self employment rules and company formations etc. I still think operating your own UK LTD is the best way to work in the UK. Non UK nationals can always use the Brollies.
European tax is typically 50-60% of income if fully declared. Social security around 12%. Setting up your own local company is complex and expensive, as is trying to be self employed. VAT registration is yet another headache.
The operating model I describe is the modus operandi on which iTecs have operated for years. The difference here is the level of fees and hidden charges they pile on to reduce your retained income to almost permy level
So to summarise, the idea is an EU IT Services company, setup and run by contractors, for contractors. A legal and fully tax compliant ManCo. Yes there needs to be some top level management, but avoiding the risks, pitfalls and high costs of a 3rd party ManCo.
You pay a fee to join, and then remain a shareholder for life. The fees pay the setup costs! Each time you take a gig, you work for the company as a salaried employee, and pay a share of the operating costs to administer your contract, and ensure your tax compliance.
Yes you will have to pay taxes. No you won’t be able to fill your offshore account full of tax free dosh. Yes you will sleep at night, and yes you will get to keep more of your earned income.
Many operational details need to be clarified, but that’s what Ernst and Young are for. They can also issue notes of advice, and seek approval for the operating model from various tax authorities, although in the UK as we’ve seen, this is worth squat!
So what do you think? Worth a shot, or better for everyone to dodge and weave, trying to stay one step ahead of the Hectors of this World, while struggling to understand all those complex laws.
Should I start a startup fund on Paypal
.
A ManCo owned through shares, and limited liability partnership [LLP], by contractors. The ManCo is based in a tax efficient, but onshore EU jurisdiction. Ireland and Cyprus are favourites.
After working in Europe for years, and having to dodge and weave through complex taxation rules, usually to avoid getting clobbered by the local extortionists, otherwise known as the tax man, I have done much research into how to trade legally, and avoid such high costs.
I’ve had my share of involvement with most of the ManCos in this space, and all, almost without exception, are either illegal, or just plain dodgy. Many have failed over the years, and it’s the contractors who have got burned, and either lost monies paid over by the agency, or had the local Hector all over them for monies due on illegal avoidance.
So how could this work?
We need a managed LTD CO in the EU. If we stay in the EU we stay within tax laws, and benefit from Double Taxation treaties etc, and avoid undue attention from different Hectors looking at the offshore havens
We choose a low tax EU country, and incorporate a managed company in that location. (Ireland 12.5%, Cyprus 10%) Directors are nominee, and the concept of a managed company is that real business is carried out in that jurisdiction. This is handled by the managed service providers, ensuring the company maintains its ‘Centre of Economic Interest’ in that jurisdiction. They do this by having offices there, and by having certain duties carried out by their staff. e.g. Directors meetings, administrative and secretarial services, a local phone and fax number etc.
Contractors then become non executive shareholders in that company. They are registered as expat experts wherever they work, enabling Social Security to be paid back in their home country (usually the UK, as this still has one of the lowest levels in Europe). They then are employed on a base salary in the local country, keeping the local Hector happy, once the 183 day rule kicks in.
The balance is retained profit in the company, so is not taxable in the country in which the services are delivered, and benefits from the low tax regime in the country of formation. Dividends are then paid to the shareholders. In most cases taxes are not payable on foreign dividends in your home country, provided tax has been paid in the home country of the company, at their preferential levels
Double Taxation Treaties are useful sometimes.Now before you all run off screaming BN66, that’s a ruling that affects the UK, and not Europe. This is not some IOM tax fiddle I am proposing. The aim here is to provide a low cost, safe and legal, tax efficient structure for those contractors wanting to take short to medium term gigs in Europe, without having to worry about local accountants, self employment rules and company formations etc. I still think operating your own UK LTD is the best way to work in the UK. Non UK nationals can always use the Brollies.
European tax is typically 50-60% of income if fully declared. Social security around 12%. Setting up your own local company is complex and expensive, as is trying to be self employed. VAT registration is yet another headache.
The operating model I describe is the modus operandi on which iTecs have operated for years. The difference here is the level of fees and hidden charges they pile on to reduce your retained income to almost permy level
So to summarise, the idea is an EU IT Services company, setup and run by contractors, for contractors. A legal and fully tax compliant ManCo. Yes there needs to be some top level management, but avoiding the risks, pitfalls and high costs of a 3rd party ManCo.
You pay a fee to join, and then remain a shareholder for life. The fees pay the setup costs! Each time you take a gig, you work for the company as a salaried employee, and pay a share of the operating costs to administer your contract, and ensure your tax compliance.
Yes you will have to pay taxes. No you won’t be able to fill your offshore account full of tax free dosh. Yes you will sleep at night, and yes you will get to keep more of your earned income.
Many operational details need to be clarified, but that’s what Ernst and Young are for. They can also issue notes of advice, and seek approval for the operating model from various tax authorities, although in the UK as we’ve seen, this is worth squat!
So what do you think? Worth a shot, or better for everyone to dodge and weave, trying to stay one step ahead of the Hectors of this World, while struggling to understand all those complex laws.
Should I start a startup fund on Paypal
.
Comment