Top Things to Know When Contracting in a New Country
Independent contractors with a flexible lifestyle can take advantage of work opportunities anywhere in the world. Ease of travel and communication between countries, make international contracting a rewarding and interesting option for expanding your professional reach.
If you have a contract in a new country, there are some things to know before you begin to avoid any conflicts with local laws and work regulations. These are all general points to think about, and each country might require a unique approach.
1. How to Get Paid: Your Options
Getting paid in a foreign country can carry some challenges for newcomers, and should be researched and structured before you leave home.
If you are used to contracting with one business model at home, you might have to adjust that in another country. You should be aware of tax treatment, residency and permanent establishment with corporate structures such as a limited company or LLC. Also, your corporate entity will need to be formally registered in the host country, along with appropriate licenses.
Self-employment (sole proprietor) is probably the most common business structure for a contractor working on their own, and offers some flexibility if working overseas. You will still want to invoice under your business name to avoid being classified as an employee of your client in the host country.
The final option is to use a third-party umbrella company that are set up to actually ‘employ’ you while you are working in the country. They take care of your withholding, tax and contributions, saving you the paperwork and compliance concerns. Fees can run about 10%, so that needs to be factored in to your billing rate.
Establishing a payment method before you start is crucial, whether the contract is a finite project or time-based. If you are working on your own (without an umbrella company) payment needs to be agreed to in your contract, along with the timing and method.
Electronic payment modes are easiest such as PayPal, but ACH or bank wire transfers can also work. Using these methods, you can still get paid in a home country account while abroad, without any time delay. Checks are the least efficient, unless you have set up a local bank account and are getting paid in the local currency.
There are countries where the client is required to make withholding from contractor payments for statutory contributions, which will also affect your net earnings. ContractorTaxation can help you with all of these payment challenges, and lessen the stress of contracting in a new country.
2. Currency Considerations
The currency that you are paid in will affect your eventual net earnings, depending on exchange rates and where you intend to spend the money. If you are in a foreign country long term, it may be simpler to get paid in the local currency to meet your expenses.
In some cases, you might want to set your contract rate in a major, stable currency (Euros, US Dollars, etc.) to avoid local currency risk. If you are paid in the local currency and converting it to your home currency, it is possible to put a ‘currency exchange’ term in your contracts, where your payment is adjusted in case of large rate changes.
3. Work Permits / Visas
Many countries will require you to have a visa or a work permit if you are contracting locally. For example, EU residents can work anywhere in the EU visa-free, but would need a work visa in other destinations. Short projects of several months or less could be handled on a business visa, but that also has its own requirements.
It can be tempting to try to use multiple extensions of tourist or business visas while working in a foreign country, but keep in mind that the client may be reporting contractor payments to tax authorities, alerting them to your presence.
Some countries have special work visas for contractors, and if you have a limited company, it could sponsor an employee visa for you. Legal advice is a good idea to avoid immigration non-compliance problems.
4. Health Insurance
Your health insurance at home is unlikely to cover you abroad, and you will need a different policy. You have the options of a regional or local policy, or for shorter stays a travel health insurance policy might be sufficient.
A local insurance policy is an additional expense to be accounted for when fixing your contract rate, if you are maintaining your coverage at home.
5. Host or Home Country Laws?
You will have to be aware of the laws of both your home country and the host country where you will be contracting. Your home country laws may still affect your tax status if you remain a resident, but host country laws will likely control the contract terms and liability.
If you are self-employed and working abroad for a long period, you could also become a ‘tax resident’ of the host country, in addition to home country tax liability. This is one of the complexities of contracting abroad, since you have juggle the laws of two jurisdictions.
6. Practical Considerations
While the legal, business and financial issues are important, contracting successfully in a foreign country also involves personal and practical items. Unlike employees being assigned abroad, you may be on your own to get set up in your new work location.
There is a wide array of housing options, and you will have to think about which is most suitable. For apartments, the primary issues are cost, security deposits, lease terms and location. It is also an option to use a long-term hotel stay, or private rentals by local owners (such as Airbnb) which are growing in popularity.
It is best to research ahead of time local mass transit systems, taxi fares and car leasing options. This is also a factor when choosing the location of accommodation.
If the local language is different than yours, this can affect both work success and personal interaction. Even if your contract does not require fluency (English being the most common business language), it is a good idea to brush up some key phrases. Culture shock is always possible, and it’s a good idea to seek out other local expats for advice and social breaks.
If reviewing all of these potential issues has you concerned, feel free to contact us at ContractorTaxation with your questions about working with clients in a foreign country. We can help you make your contracting abroad seamless and free of worry about payment and compliance.