The Ultimate Guide to Becoming an International Contractor
As a skilled worker you have options when it comes to delivering your services. You may have begun your career as an employee, either for stability or to gain experience. But at some point you might yearn for more independence, or want the flexibility to work anywhere you wish. But how do you transition from traditional employment to working as an independent contractor, and even take your skills abroad?
Take the example of Jonathon, an IT specialist working in Silicon Valley for a major tech firm. He had been there for five years, and making good money but realised that he wasn’t really progressing as he hoped in the company. He kept hearing about IT opportunities with companies in exotic locations like Dubai and Singapore, that were expanding in the tech industry and looking for skilled contractors. But he had always worked as an employee, and didn’t know much about being a self-employed contractor, especially in a foreign country.
If this story sounds familiar to you, this guide will explain what you need to know about contracting, how it differs from employment, and what you could expect as an international contractor. It can be an exciting adventure, but there are some basic concepts to grasp before you start looking for clients.
What is an Independent Contractor?
So what does it mean for you to be an independent contractor? Here is a definition to start with:
“An independent contractor is a person who undertakes a contract to perform services for specific clients under agreed terms. Contractors are normally paid on an ad hoc basis according to their output. This might be measured in time, productivity or deliverables.
Contractors may also be known as independent contractors, freelancers or consultants. They may work through a self-employed system, their company or an umbrella company.”
As the name implies you will work under a “contract” meaning an agreement (normally written) which explains the services to be provided, who will provide them, and who will receive them. Crucially it also sets the terms and conditions of performance. This includes what the contractor is and isn’t allowed to do, how the client will reward the contractor for the work, and what happens if either party doesn’t do the right thing.
If our IT specialist Jonathon decided to explore contracting abroad and ended up getting an offer from a client, the first thing that would happen is the negotiation of his contract. He will have to be prepared to quote a rate based on the role and time frame being offered by the client. It might only be six months to begin, if the client wants to give him a trial run before commiting long term. This is the difference between a permanent contract and a temporary contract. So, that is part of the risk he takes and he will have to perform well to continue in the position, or get a reference for a new job.
A Contractor’s Relationship with the Client
As a contractor you are typically not an employee of your client. If the client terminates the assignment you have no right to redress, especially if you are working in a foreign country. The client is under no obligation to offer you further work, nor are you obliged to accept it. In an employment relationship, the employer must offer work to the employee or face possible statutory penalties for unfair termination.
Contractors generally don’t receive any of the statutory rights of employees – i.e. no holiday pay, no sick leave, no redundancy pay. Generally, if a contractor is off sick for more than a few days the client has the right to cancel the contract.
Compliance, Self-employment and Umbrella Companies
This underscores the reality of contracting: you are essentially self-employed and have to conduct yourself as a business. You must market your skills accordingly and manage all of your contractual and legal relationships. This includes complying with tax, immigration and business registration laws in the foreign country.
For this reason, new contractors like Jonathon will often work through a local umbrella company who can assist with setting up the contract, facilitating client payments and withholding taxes accurately. Sometimes, the umbrella company can sponsor work permits as well, a real convenience that makes it easier to switch clients without a new work visa.
What are Typical Independent Contractor Examples Abroad?
You might wonder if your profession lends itself to independent contractor jobs, or if there is any demand for your skills. Subject to government regulations, almost any business role can be filled by a contractor. However, there are some positions that are more common to contracting such as:
- Seasonal work for private contractors, such as in the oil and gas or tourist industry
- IT specialists who can work on a project basis and don’t require full time employment
- Remote workers that provide services in the marketing, accounting, and legal professions
- Construction workers and engineers that can commit to a project until completion
Independent Contractor vs Employee: Which is best for you?
You might be thinking that international contracting might be more than you are ready for, even using an umbrella company solution. In some cases, your client might offer you true employment, especially if that makes it easier to obtain a work permit. In some countries such as the UK, working as a contractor is scrutinised closely to make sure that it’s not ‘stealth employment’ and a way for the business to escape statutory employee benefits. So, you might not have a choice, but contractors do have more autonomy over their work schedule, as well as access to more business tax deductions.
Most tax authorities now measure the difference between employees and contractors in 3 ways:
- Who is in charge of the behaviour of the person performing the work, and do they exercise control over the worker?
- Are they paid regardless of the work they perform?
- What is the relationship between the client and contractor?
The client might end up making the choice for you, but if you value independence, flexibility and the option to work with multiple clients, then contracting might be best. If you prefer more stability and employee benefits, then true employment would serve those goals and you could always ask your client for that option.
How Can Contractor Taxation Help You with Your International Contracting Journey?
If you are new to contracting in foreign countries, it can be daunting without a reliable resource partner to assist you. Contractor Taxation maintains a global network of umbrella companies that can be your in-country ally, and aid you on your contracting journey.
Recently, Contractor Taxation was contacted by an Australian national who was living in Germany. He had been offered a remote position by a US company and wanted to know how he could be a contractor and continue living in Germany. We referred him to our German partner that could get him set up with a local umbrella company.
The umbrella company is a third party intermediary to the contract, facilitating all payments and transactions with the client. They will also ensure that you are in full compliance with foreign regulations.
Other benefits of umbrella companies include:
- Manages all client payments, tax withholding and any social contributions
- Issues you a payslip each month, to a local or foreign account
- Sponsors work permits
- Helps set up the contract with the client
- Moderates any disputes with your client
- Advises on access to totalization and double taxation treaties
If you have questions about how an umbrella company can help you as an international contractor, please contact us at Contractor Taxation.
They can be paid either as self-employed, via an umbrella company, or through their own limited company. One expat working in Spain decided to qualify for the self-employment work permit, and arranged with the client to get paid directly. She had a co-worker that used an umbrella company instead, so the client sent payments to the umbrella company who forwarded the after-tax amount to the contractor’s account.
Contractors must file and pay taxes in the country where they are working, and often in their home country as well. There are usually online portals for filing and payment, or one can hire a local accountant. In some countries, clients are required to withhold taxes from contractors just as they would with an employee.
If the contractor is truly self-employed then they are technically a business. This means that many expenses can be deducted from taxes, which is a key advantage over being an employee.
If a contractor is making statutory social contributions, then they may be able to get some form of public health insurance if that is included in the program. Otherwise, they will have to purchase private health insurance. One savvy expat contractor took out a travel insurance policy that included health coverage abroad. It was much cheaper than the local private insurance and was good for the first year of her foreign stay.
Contractor Taxation assisted an expat in this situation, where the couple was in Taiwan and the wife on a spousal visa. She was offered a remote contracting position in the US, and we set her up with an umbrella company in Taiwan so that she could legally work. (most countries don’t allow work under a spousal visa, and this gave her a way to contract with the US client).