UK Limited Company
This is the
most popular route for UK contractors but usually proves unsuitable when
contracting overseas, as it can cause corporate tax problems related to the
residence of the employer. Also, IR35 implications cannot be avoided merely
because the contractor has relocated overseas.
Agency Employee
A number of
agencies offer the contractor the option of registering as their employee
and applying relevant tax and social security charges to his earnings. This
often is not a tax efficient option for the contractor to consider, as the
agency may not be structured, nor even inclined, to give appropriate tax
advice, nor will it be able to identify potential tax-saving opportunities
for the contractor.
Foreign Management Company
This route
involves the contractor becoming an employee of a foreign registered
independent management company. This option will often try to take advantage
of lower social security rates available in the selected country, or may be
offered because local regulations insist upon it as the only possible
solution.
Offshore Company
In this case
the contractor becomes an employee of a company which is registered in a
country with special tax advantages, such as Gibraltar or the Channel
Islands. This method should be considered only in very specific cases.
However if it is not set-up and administered correctly the contractor can
incur serious penalties, and may lose the protection of international double
tax agreements, which can prove financially disastrous.
Self Employment
It is
possible in certain circumstances for a contractor to register as a sole
trader (sometimes known as "freelancer" or "independent") in the country
where the contract work is performed. This is a viable option in several
European destinations and can sometimes provide the best route for
maximising net income from the contract. Often generous social security
structures exist for self-employed individuals, and together with expense
planning, the contractor can achieve an acceptable net income.
U.K. Umbrella
In this case
the contractor becomes an employee of a management company which is
registered in the United Kingdom. If properly structured and administered
this can often gives the best opportunity of minimising exposure to foreign
tax by taking advantage of a combination of factors such as UK corporate and
personal residence to bring an efficient, legitimate and financially
rewarding package.
