Where to pay tax - co in UK, client in EU

[WindyAnna]

Bit of a debate with a colleague.

His company is based and registered in UK. He is working on client site in Europe. He is now living out near the client site and has no address in UK. Where does he pay tax?

I think it client country, he thinks in UK where he intends to return after secondment but doesn't see the point of retaining two homes (he rents). I know from my experience working overseas both as contractor and employee then you are on dodgy ground once you seem to be no longer living in UK. I was once in same situation having split from partner and sold our house in UK and not found another during time I was working in France, I was advised to register myself at my parents address in the interim to make it clear that I was a UK resident (I was coming back every weekend anyway!) otherwise the French taxman would be after me.

Hector is unlikely to mind given it's revenue - what about local Hector in client location?

Cheers
Windy

[LisaContractorUmbrella]

How long has your colleague been working on the contract outside UK??

[jamesbrown]

It isn't that simple and you don't provide sufficient information. First, he and his company are different things. Personal tax is based on residency status and many states will tax their residents (residents for tax purposes) on worldwide income. It recently became more difficult to become non-resident for tax purposes in the UK but, in any case, establishing residency would be the starting point. In general, there are mechanisms to avoid double taxation on the same income. The second issue concerns company taxes, for which it is generally less straightforward to avoid double taxation. A company may become resident in another state immediately if that company is controlled from the other state, without the ability to avoid company taxes in the UK. In terms of treatment by HMRC, it is not necessarily complicated if the contract is a short one (i.e. < 12 months) and the director remains resident in the UK for tax purposes, but there may be complications with VAT etc., depending on the nature of the services and place of supply. Complex area.

[borderreiver]

If he is the sole director of the company and no other work is done by the company apart from his work at the client site, then the company will be viewed as taxable in the client's country IMO.

If he himself takes neither salary nor dividends out of the company while he is working at the client site, he may be able to claim that he is personally UK tax resident, but without having a UK address I imagine that's rather hard to argue

I'm sure BlasterB and boo will be along in a moment to argue about all this though

[northernladuk]

Isn't the actual country a key factor here. Some have dual taxation agreements, some don't have very stringent and complicated rules etc etc. I don't think you are going to get a reasonable answer until you specify a country are you?

[moggy]

Isn't the actual country a key factor here. Some have dual taxation agreements, some don't have very stringent and complicated rules etc etc. I don't think you are going to get a reasonable answer until you specify a country are you?

This.

if allowable then 183 days in a year could come into play, but as NLUK says, in some countries its from day one.

[BlasterBates]

The safest is to tax yourself where you do the work.

Rules on companies is that they´re taxed whereever they have a "permanent establishment". In the case of a one man company in some countries that means from day one, i.e. it moves with the man. We know this becuase we get distressed posters complaining about being raided. Since the definition of permanent establishment is unclear and may even differ according to the discretion of the tax inspector, probably best not to mess at all and simply tax your earnings where the contract is.

You can use your Ltd but you need to register a branch in the country you are working in and keep a seperate set of accounts. It is probably easier though to setup locally and see a local accountant.

Lets put it this way if you tax yourself where the contract is you´re never wrong and your tax returns in that country and in the UK won´t be questioned. If however you use your UK Ltd and don´t inform the tax authorities where you work you can not rule out a criminal investigation or prosecution. It is beyond me why contractors even contemplate working somewhere and not telling anyone.

[WindyAnna]

Thanks all.

He's been out there since last July and is due to remain there for 18 months, he has taken salary (not sure about divis) during that time. Country is Czech Republic.

I've done this myself in Germany and France but had permanent UK base and came home every weekend, I also contracted my UK company to a UK subsidiary of the client. When hubbie worked in NL he ended up getting paid and taxed over there even though he was UK resident as that was advice we received and he was contracted to the NL co. complete PITA frankly but NL is somewhat unusual!

I think as an absolute minimum he needs to get advice on this - he could end up with a tax demand over there. Just discovered another colleague, an employee, working for same subsidiary is paying tax over there even though he has a UK base and a UK contract.

Thanks again for advice!

Windy

[Brussels Slumdog]

Tax and social security

The safest is to tax yourself where you do the work.

Lets put it this way if you tax yourself where the contract is you´re never wrong and your tax returns in that country and in the UK won´t be questioned. If however you use your UK Ltd and don´t inform the tax authorities where you work you can not rule out a criminal investigation or prosecution. It is beyond me why contractors even contemplate working somewhere and not telling anyone.

This is the best advice for contracts over a month. It would not be worth the hassle to involve the tax authorities in the other country for a few weeks work when you have most likely not even earned above the single persons tax free allowance.

If you are working in the EU and paying tax and social insurance in the UK you may have a problem if you are run over by a bus and end up in hospital
If you are paying social security in the EU you can obtain a S1 to cover you in your home country

Tax resident in one country with a contract in a second country and being sent to a third country can become even more complicated.

[sheer consulting]

Where to pay tax - co in UK, client in EU

This issue should be split into two categories since the ltd co and his personal taxes are viewed as two separate items.

For the ltd co, I would stop billing through this ASAP since there is very real risk that the Czech tax man will claim that a permanent establishment had been created and there is now a requirement to file accounts and pay corp tax in their country. I state this because the rule of thumb on creating a PE overseas is 90 days yet this mechanism has been operational since June.

Due to this length of time I would also consider that he has now become tax resident on his personal taxes in Czech Republic.

My advice is to seek advice on how to set up and manage his personal tax affairs in Czech Rep so that these can offset against his UK liability. This will keep both tax offices happy and will remain this way unless he can be deemed non tax resident in the UK