International contractors face new expenses when they decide to work on-site for clients abroad, which can affect overall net earnings. You can’t just charge a rate that you would for a client at home as you would be ignoring the financial reality of international contracting. In contrast, expats who are hired as employees abroad may have many of these expenses covered by their new employer.
Most of these costs are unavoidable and should be factored in when you are setting your contract rates. Even if your client offers to assist with your expenses (such as a housing allowance) this is not advised as it could result in a challenge to your contractor status by authorities.
Here are some of the common expenses for international contractors you will be facing:
1. Relocation Costs
One obvious expense is that of relocating to a foreign country. You have to factor in the air or ground transportation, moving personal effects, and temporary accommodation. Essentially, you are moving your home and base of operations across borders, which can be simple or complex depending on your situation.
2. Visa Fees
In most cases, you will need a work visa in a foreign country, and as a self-employed, you will shoulder that cost on your own. Even if a client agrees to sponsor your visa, they may still expect you to pay for it. Depending on the country, applications and annual visa fees can be up to several hundred dollars. Unless you are adept at navigating new immigration rules, you may also need professional assistance to help secure your visa.
Long-term contractors will want to secure a stable rental property in the new location as soon as possible. Rental costs and policies can vary across regions, but in general, landlords may be wary of a new expat contractor that can move out at a moment’s notice. This might require an additional month’s deposit to offset the landlord’s risk, with the understanding that even if you hold up your end those deposits may not be returned.
You will need to research ahead of time housing costs and typical utilities so you can make a realistic budget, which can be either higher or lower than at home. The other factor is whether you intend to maintain a residence in your home country while working abroad.
4. Traveling Home
You may love your new country, but either family or personal reasons might require one or more trips home each year. Those expenses should be anticipated, built into your budget, and are best planned in advance. This would likely substitute your vacation time unless you can arrange to work remotely for your client while away.
5. Health Care
Your home health insurance plan will likely not cover you when you are living and working abroad. Travel insurance policies are usually only for short-term stays, and won’t be valid for expat residents. You can either purchase a policy in-country or in some cases contribute to the social insurance program that will provide local coverage. EU nationals may be able to rely on their home country’s health program.
Some expats will choose to ‘self-insure’ if health care is inexpensive, but this does not account for catastrophic events or illnesses. At a minimum, you will want a policy that offers emergency transportation to your home country in extreme cases. That strategy assumes that you maintain a home health policy while abroad.
6. Value Added Tax (VAT)
Some countries will impose VAT on contractors once they reach a certain annual earnings threshold. This is in addition to normal income tax rates, and by example in the UK is 20% on annual turnover exceeding GBP 85,000. If you know the rates ahead of time, you can easily build this into your contract rates that exceed the threshold, rather than face a surprise tax bill at year-end.
7. Child Education
If you are moving with your family and you have young children, education is a consideration. Local schools may not be equivalent to your home country, and you may have to opt for international private schools. These are often English-speaking and of high quality, but they are not inexpensive as they cater to expat executives on assignment.
8. Legal/Accounting Fees
It is likely you will need professional assistance with visas, accounting, tax filing, and complying with local regulations. Attempting this on your own is time-consuming and often frustrating, so hiring professionals is a necessary expense. The other alternative is to use an umbrella company to manage your contracts and client payments, as well as advise on all compliance steps for contractors.
How Contractor Taxation can help you when contracting abroad
If you are contracting for the first time in a new country, you may need assistance with every aspect of getting started. Umbrella companies exist for this very reason: to act as your ally and an intermediary between you and your client in a new relationship. They become your valuable partner when it comes to invoicing, timely payment, and withholding accurate taxes.
Umbrella companies are set up in the host country and staffed by residents who will know how to help you manage the expenses of contracting in their country. They can act as a reference when securing rental properties, provide referrals, help with work permits and ensure that you have an overall smooth transition.
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.