When it comes to working abroad, many contractors and companies aren’t aware of their tax liabilities; both are potentially at risk of falling foul of tax directives.
The major advantage for companies working with foreign interim professionals is access to a larger pool of highly qualified, flexible workers. These individuals are true experts in their field, having accumulated a wealth of experience, usually focused on a specific area of expertise across a number of businesses and locations. As contractors, they’re generally willing to be more flexible as well, whether it’s by relocating for a role or coming on board for a short-term project.
When it comes to working abroad, many contractors and companies aren’t aware of their tax liabilities; both are potentially at risk of falling foul of tax directives. Unfortunately, some recruitment agencies (and even contractors themselves) aren’t overly concerned about complying with the rules and consequently mislead companies, suggesting that foreign workers are protected by a tax regulation known as the ‘183 day rule’.
This is misguided, however, and these individuals are potentially putting themselves at risk of fines, penalties and back-dated liabilities.
The confusion over this directive is down to the misinterpretation of an internationally-recognised tax law stating that when working abroad for less than six months (the 183 day rule), contractors aren’t liable for paying taxes in their host country. The truth is that this regulation doesn’t apply to self-employed and independent workers, but only to contractors who have a genuine (and established) employment relationship with their employer in the country where they’re a resident for tax purposes.
Many of these contractors should be paying local taxes from the first day of a new job—and the regulation applies to all company employees, from the managing director down.
This means that, in a world where it’s increasingly easy and attractive for workers to relocate abroad for a role, especially in global corporations, a growing amount of contractors are potentially unknowingly breaking the law. The responsibility lies on all sides, as agencies might encourage employees to take a contract—thinking the tax exception applies—and contractors are equally eager to accept a role; in the instance where recruiters have misunderstood the regulation, they might mistakenly reassure contractors that they’re protected, provided they are working less than six months.
But companies have to do their own due diligence—especially as a single mistake puts them at risk, potentially resulting in a large fine or penalty down the line. Ignorance is never a defence when it comes to tax regulations.
With this in mind, both contractors and companies should be working with recruitment firms that guarantee compliance with local tax regulations; these firms should be equally as focused on adhering to the law as they are with finding the right candidate with the required skill set for a role. Proco Interim prides itself in this balance of priorities—we work with tax experts who advise us every step of the way.
This means that you can rest assured that you’re working in partnership with a search firm that has extensive EMEA experience and a firm understanding of these regulations.
Proco Interim understands that it’s our responsibility to keep both parties informed of their tax liabilities; we won’t go through the process of issuing a contract without making both the contractor and the company aware of their tax obligations. We can reassure our clients that, even five years down the line, they won’t have an unwanted visit from the taxman.
As recruitment specialists, we take this responsibility very seriously. This is a crucial aspect of what separates us from other search firms.
Are you a business looking for contractors who can cover an activity gap in a project or fulfill a role for as long as required and at short notice? Get in contact with me on email@example.com to discuss how we can work together.