Contracting in EU - am I now stuffed ?? Help Please !

**The Lone Gunman** · 2 April 2007, 16:40

You need to find someone with experience in slovakia.

Tax systems vary across Europe.
Most countries will make you tax resident after 6 months so you do not have a choice where you pay your taxes unless you can show you are not tax resident.
You need to know the local rules. A quick google might help.

**ASB** · 2 April 2007, 16:51

It is also perfectly possible to be tax resident in BOTH the UK and somewhere else. In which case double taxation agreements kick in which generally mean you wil pay the highest rate of the 'n' countries you are simultaneously tax resident in.

**Jaro** · 2 April 2007, 17:18

Thanks for the replies - appreciated.

My understanding is that I would have a pay a percentage of tax to slovakia once I had been working there past a set period of time and also paying a percentage to the UK etc.

Im very surprised that my present "Managed company" providers could not say to me with any certainity if they could provide a solution to this. They said that not much thought had been give by HMRC to those working abroad, and effectively if you are working abroad then you should be sorting that out for yourself. Which is fair enough but also a right old pain the proverbials.

My 'agent' who is based outside of the UK thinks he can help me out .. so if I get any info then i'll post it back.

Thanks

Jaro

**Euro-commuter** · 3 April 2007, 07:28

Originally posted by Jaro

Thanks for the replies - appreciated.

My understanding is that I would have a pay a percentage of tax to slovakia once I had been working there past a set period of time and also paying a percentage to the UK etc.

I am no expert, but that seems unusual to me: percentage liability, I mean. Normally each country would tax you on all the income from that country, at the very least; and one or more countries would tax you on all income worldwide, but with a credit for recognised tax paid elsewhere.

(This leads to the result mentioned by ASB, whereby the net effect is to pay the highest rate of any of the countries).

The Lone Gunman is also spot-on: you do not get to decide where you pay what.

A typical situation might be: pay tax in Slovakia on income earned there. Declare this income to UK tax authorities, and declare the Slovak tax paid too. Then the UK calculates your UK tax due, and subtracts from that the Slovak tax paid.

Gotchas and inconveniences might include:
- deductions allowed in one country but not the other (e.g. weekly travel to/from home): the net effect is that any tax reduction in one country is balanced by more tax in the other.
- timing: you might have to pay up in one country a long time before you get credit for it in the other.
- social security type deductions, which you may have to pay in both countries.
- compulsory payments which count as "tax" in one country but not as "tax" in the other: you may then not get a credit in one country for amounts paid in the other.

That's the stark theory: good advice can help greatly.

**BlasterBates** · 3 April 2007, 07:59

Where you pay tax is where you do the work.

Now from what I understand 1 day is in the Uk and 4 days Slovakia. It is very likely that you are liable for tax in Slovakia, you need to check. However if you spend more than 90 days on average in the UK you need to declare it in the UK as well, techincally the one day a week may well be taxable in the UK, but if your invoices are paid in Slovakia, I doubt that this will be taxable in the UK. The double taxation treaty will mean that you don't pay any tax in the UK but the income will be credited and any additional income in the UK will be subject to a higher rate of tax.

**ASB** · 3 April 2007, 08:45

Originally posted by BlasterBates

Where you pay tax is where you do the work.

Now from what I understand 1 day is in the Uk and 4 days Slovakia. It is very likely that you are liable for tax in Slovakia, you need to check. However if you spend more than 90 days on average in the UK you need to declare it in the UK as well, techincally the one day a week may well be taxable in the UK, but if your invoices are paid in Slovakia, I doubt that this will be taxable in the UK. The double taxation treaty will mean that you don't pay any tax in the UK but the income will be credited and any additional income in the UK will be subject to a higher rate of tax.

I'm afraid that simply is not how it works. Ignoring the slovak position you are either resident or non resident in the UK. We operate a mondiale tax system. If you are resident in the UK (and domiciled here) then you pay UK tax on your worldwide gross income [in this context a company has tax residency in much the same way as an individual].

Granted any DTA between the UK and slovakia may lead to full credit of any other tax paid against the income, and this may reduce the UK tax liability to zero but it is still taxed in the UK.

Euro-commuter is quite right to highlight problems. I got caught out by the UK portugal DTA (but not for enough to make it worth persuing much). Here the issue was that I personally had to pay 15% income tax in Portugal as a result of withholding taxes against my companys invoices. This was not allowable against the companys CT bill because it was not a tax paid by the company. It was not allowable against my personal tax because I didn't have any actual Portuguese income

**BlasterBates** · 3 April 2007, 10:38

There is a double taxation agreement which means income taxed in Slovakia won't be taxed in the UK, though it must be declared. Under double taxation agreements there is no difference to pay. However if you have additional income in the UK this will be taxed at a higher marginal rate.

**ASB** · 3 April 2007, 11:53

Originally posted by BlasterBates

There is a double taxation agreement which means income taxed in Slovakia won't be taxed in the UK, though it must be declared. Under double taxation agreements there is no difference to pay. However if you have additional income in the UK this will be taxed at a higher marginal rate.

and possibly

http://www.hmrc.gov.uk/pdfs/ir20.htm#earned

5.9 ... If you are resident in the UK, we will normally tax you on all earnings you receive from sources abroad. ....

But:

9.6 Under many double taxation agreements you may be able to claim exemption from UK tax on ....

Presumably then the DTA between the UK and Slovakia specifically exempts the income (assuming it is a non UK employer). I expect in the case of a UK employer the income would still be chargeable and the only relief would be the actual tax paid.

[In my situation I have always been in the postion that the income was chargeable and relief was obtained (usually) in the sum of the foreign tax paid, but I accept all agreements are different].

**Euro-commuter** · 3 April 2007, 11:59

Originally posted by ASB

and possibly

http://www.hmrc.gov.uk/pdfs/ir20.htm#earned

5.9 ... If you are resident in the UK, we will normally tax you on all earnings you receive from sources abroad. ....

But:

9.6 Under many double taxation agreements you may be able to claim exemption from UK tax on ....

Presumably then the DTA between the UK and Slovakia specifically exempts the income (assuming it is a non UK employer). I expect in the case of a UK employer the income would still be chargeable and the only relief would be the actual tax paid.

[In my situation I have always been in the postion that the income was chargeable and relief was obtained (usually) in the sum of the foreign tax paid, but I accept all agreements are different].

9.6 Under many double taxation agreements you may be able to claim exemption from UK tax on

- earnings from an employment, and
- profits or earnings for independent, personal or professional services

carried on in the UK, if you are a resident of the overseas country for the purposes of the agreement

Contracting in EU - am I now stuffed ?? Help Please !