What is an Umbrella Company?

Umbrella Companies: What They Are and Why You Need Them

An umbrella company acts as the legal intermediary between a client and an independent contractor, to facilitate the contractual relationship. Contractors select umbrella companies when working internationally if they are unfamiliar with local regulations and wish to remain in compliance. The umbrella company stands in the middle of the client-contractor relationship so that both parties are satisfied with performance and payment. We have a network of umbrella companies all across the globe if you need one for your international client contracts.

Umbrella Company

What is covered by umbrella company services?

The scope of services by umbrella companies will vary, but the best umbrella companies will provide a full suite of services for international contractors.  When you are looking for an umbrella company in a foreign country to be your contracting partner, they should offer all of the following services:  

  • Manages all client payments, tax withholding and any social contributions
  • Invoices the client on your behalf
  • 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 choose to use a DIY approach when contracting, you will be performing all of these tasks on your own, which underscores the value of an umbrella company.

We have a short video explanation of what an umbrella company is and how an umbrella company works

What happens when you engage with an umbrella company as a contractor?

The umbrella company provides the contractor with several benefits once you have your contract in place:

  • They will typically process client payments quickly (within 24 hours of receipt) ensuring good cash flow.
  • They make full use of all legal advantages and self-employment benefits to which the contractor is entitled.
  • They can provide benefits in terms of group purchasing, using their large number of “employees” to negotiate advantageous rates on services that contractors commonly use like car leases, mortgages, mobile phone contracts, computers, professional subscriptions, insurance, and gym membership.
  • A good umbrella company will use a high level of automation in their process administration for the contractor. You just have to fill in your timesheets, wait for client payment and deposit to your bank account, and then receive your payslips and tax reports electronically.
  • Umbrella companies can also provide work permits and business visas for foreign nationals who need immigration assistance to perform their contract. We specialize in dealing with these umbrella companies – if you need help with sponsorship or a work visa for your next contract please contact us.
  • Additionally, they give the recruitment agency and end client the reassurance they need that the contractor is being paid legally and reliably.

How to choose an Umbrella Company

In developed markets where umbrella companies are well established their services are fairly similar. But services can vary among countries which is where Contractor Taxation can really help you.  We only work with quality umbrella companies that offer a full range of services for contractors.  Here are some of the criteria that we use to select umbrella companies to be a part of our global network:

  • The company is reliable with an established track record serving expat contractors
  • They fully licensed and insured in their country of business 
  • They use a fair and verifiable fee structure
  • Their payment process for contractors is well tested without any issues with delays
  • The company is willing to handle pension or superannuation contributions for contractors
  • They work with contractors who are on short contracts
  • The umbrella company uses staff with legal and accounting expertise
  • They experienced with work permit sponsorship and immigration rules

If you want us to help you choose an umbrella company (it’s FREE!)

  1. Fill in our form. It takes 30 seconds to give your basic details.
  2. We will respond by email giving you advice straight away and possibly asking further questions to make sure it’s a good match.
  3. You can ask us any questions you like (still FREE!) and we’ll talk through your options with you.
  4. If you like any of the options we suggest, we can introduce you to the providers.

We don’t charge you anything for our services.

Here are some commonly asked questions:

What are umbrella companies?

What does an umbrella company do?

The umbrella company is a legal entity registered in a country that acts as an intermediary between contractors and their clients.  They facilitate client payments, withhold taxes and contributions, and can also sponsor work permits.  The ‘umbrella company’ meaning comes from the idea that they are in a position to cover the entire client-contractor relationship, ensuring a smooth experience for each party.

Why use an umbrella company?

There are several reasons to use an umbrella company, but the best umbrella company will commit to be an essential ally for a contractor working in a foreign country.  They will handle all the administrative tasks associated with client payment and government compliance on your behalf.  Otherwise, you will be forced to learn and comply with all host country regulations on your own, or hire local attorneys and accountants.

When to use an umbrella company?

An international contractor will want to use an umbrella company when they are new to a country and unfamiliar with immigration, tax and self-employment regulations.  An umbrella company is also useful if a contractor is in a new client relationship, and concerned about payment and potential misunderstandings with the client as a foreign worker.

Why use an umbrella company for international contracting?

Working in a foreign country carries a certain amount of stress and uncertainty, and using an umbrella company can ease the burden.  The umbrella company handles all the details of administering your work life, while you can focus on your duties and position with your client.  You also don’t have to worry about non-compliance as the umbrella company is staffed with local experts.

Best umbrella company for international contractors

How to choose the best umbrella company?

The umbrella company that you choose should have a long history in the host country and a solid reputation in the industry.  They will be able to demonstrate that they have an established system for assisting contractors, and an experienced staff familiar with all regulations.

Which umbrella company should I use?

You should choose the best umbrella company that can fully meet your needs as a contractor in a foreign country.  They will be registered in the host country, have excellent customer service, available references and a single point of contact.  You should avoid umbrella companies that only offer an online platform, are new to the industry or have a limited scope of services (such as ‘payment only’).

How much does an umbrella company charge?

An umbrella company will charge the contractor a monthly fee, either based on a percentage of the contract rate or a fixed fee.  If you intend to use an umbrella company, it is possible to have your client share the fee as there is benefit to you both.  This can be a point of negotiation for your client contract.

How can I find help when choosing an umbrella company?

Both your client and recruitment agency will be familiar with umbrella companies in the respective country and might refer you.  Or to avoid any potential conflict of interest,  you can contact Contractor Taxation for access to our fully vetted network of umbrella companies. 

What are the specific roles filled by the best umbrella company?

Do umbrella companies pay your tax?

Umbrella companies will calculate and withhold your taxes monthly, just as with the PAYE system.  This way you will know your taxes are accurate and in compliance, although you will still be responsible for filing your annual tax return.

Do umbrella companies pay social contributions?

Umbrella companies also pay your regular social contributions, depending on whether they are required for self-employed expats in the host country.  Most countries will deduct these contributions before calculating tax, so its most efficient to have the umbrella company do it for you.

Do umbrella companies pay holidays?

As a self-employed contractor you are not entitled to holiday pay, but if you choose to be an employee of your client those amounts would be accounted for in payroll.

How does an umbrella company help with my client payments?

Your client will send your payment directly to the umbrella company, who will then issue you a final amount after all deductions.  If there is an issue with payment, the umbrella company will facilitate with the client for resolution.  This allows you to avoid any internal conflict with your client that could affect your position.

Can an umbrella company sponsor work permits?

In most countries, an umbrella company is a legal corporate entity that can sponsor your work permit.  One advantage is that because the work permit is with the umbrella company, you can usually change clients easily and without a new permit application.

Contact Us

"*" indicates required fields

This field is for validation purposes and should be left unchanged.