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

[BlasterBates]

...well that is true, but I think you'll find no double taxation treaty with an EU country where any form of income is taxed twice, with some form of tax credits. Where they differ is in which country the taxation is paid. This is particularly the case with investments, sometimes they are taxed in the country where they are paid, sometimes you can claim exemption but generally beacause the you are liable for tax in the other country.

[ASB]

Double taxation agreement means you only pay tax in one country on a source of income.

I think that where to confusion comes in. A double taxation agreement does NOT mean that. It means whatever is in the agreement (which is often, but not always as you say).

HMRC say:-

Non-residents, and residents of more than one country

9.2 If you are a resident of a country with which the UK has a double taxation agreement, you may be able to claim exemption or partial relief from UK tax on certain types of income from UK sources. You may also be able to claim exemption from capital gains tax on the disposal of assets. The precise conditions of exemption or relief can be found in the relevant agreement. It is not possible to give full details here as they vary from agreement to agreement. If you are resident both in the UK and a country with which the UK has a double taxation agreement, there may be special provisions in the agreement for treating you as a resident of only one of the countries for the purposes of the agreement.

[BlasterBates]

In a double taxation agreement there is no credit.

Tax credit only apply if there is no double taxation agreement.

Double taxation agreement means you only pay tax in one country on a source of income.

[Euro-commuter]

This refers to annuities pensions and divîdends and other special types of income that you earn in the UK while working in a DT country, and are normally taxed in the UK.

This does not mean your income that has already been taxed. The whole point of a double taxation agreement is that you are only taxed once, either in the UK or the other country.

In the questioner's case he would not pay tax on his Slovakian income.

He would not pay UK tax on income earned in Slovakia, if he spent enough time in Slovakia. Otherwise he would pay UK tax on it, but with a credit against UK tax due, of the amount of tax paid to Slovakia.

[BlasterBates]

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

This refers to annuities pensions and divîdends and other special types of income that you earn in the UK while working in a DT country, and are normally taxed in the UK.

This does not mean your income that has already been taxed. The whole point of a double taxation agreement is that you are only taxed once, either in the UK or the other country.

In the questioner's case he would not pay tax on his Slovakian income.

[Euro-commuter]

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

[ASB]

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].

[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.

[ASB]

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]

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.

[Euro-commuter]

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.

[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.

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

[ASB]

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.

[The Lone Gunman]

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.

[Jaro]

Hi All,

I was working in Slovakia last year under a "managed company" setup. I finishsed the contract in December last year. I was deemed to be "self employed" for this contract i.e. provision of equipement, substitution clause, place of work etc. I would travel back to the UK most weekends.

Ive now been offered a new contract with the same company based in Slovakia with the option of working one morning from home.

The company that handled my "managed company" have basically said that at present they dont know if they can offer me a management service (based on Paye through IR35 - although im still not sure if I would be outside or inside IR35). They have said that I could set up a limited but I would have to handle who I was going to pay tax to i.e. UK/Slovakia etc and how much etc etc..

Can anyone who is presently contracting abroad give me any pointers on what I can do as the contract was scheduled to start in one weeks time.

Any info would be greatly appreciated.

Jaro