International contractors have a few choices of how to get paid when engaging clients in foreign countries. If you are used to only contracting in your own country, you will want to understand those options. You also want to know how they will impact your contracts, earnings and legal compliance.
If you are entering a new country, for instance, Mexico to serve your clients, it may not be easy to do so long term on your own, as either a freelancer or with a limited company. Some countries do not permit foreigners to work as freelancers, which means you would have to become an employee of your client. In most cases, this may not be the preference for either of you. Even if you have a limited company in your own country, it’s not always possible to operate in foreign countries without extensive registration requirements.
This article will discuss a better option of choosing an umbrella company in a foreign country. It will also discuss how to go about choosing the best one for you.
What is an Umbrella Company?
An umbrella company is a legal entity in a foreign country that provides payment, tax and immigration services to contractors. They may work with both residents and expats, as the benefits apply regardless. In essence, this company becomes your local ‘employer’ and will work on your behalf as a third party to facilitate payment from your client, as well as ensure your performance of projects and milestones.
Once the client remits payment to the umbrella company, they will calculate and withhold your taxes and social contributions so that you are compliant, and then issue you a payslip with your net earnings.
Why do you need an umbrella company?
The umbrella company saves you the time and effort of handling your own taxes and contributions in an unfamiliar country and gives you the peace of mind that there is some oversight to the contract with your client. This works both ways, as the client has a local established entity to ease the risk of working with a new expat contractor.
As an employee of the company, you will receive all local benefits and entitlements, and they can also sponsor any needed work permits or visas, for example when non-EU contractors want to work in the EU.
Here are the advantages of working with an umbrella company:
- Handles all client payments, tax withholding and any social contributions
- Issues you a payslip each month, to a local or foreign account
- Can sponsor 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
Questions to ask when choosing an umbrella company
There are some essential questions to consider when choosing an umbrella company and before committing to one.
How long has the umbrella company been in business?
You will want a company with a solid history in the country. This helps so you know they’re able to meet your needs.
Does the umbrella company pay regularly?
Because the company is facilitating payments, you will want to know if they have a reputation for delays or other issues. Contacting references can get you this essential information about how quickly payments are made.
How does the umbrella company manage compliance?
The umbrella company of your choice has to be able to manage compliance requirements for contractors. These include immigration for expats, tax withholding and reporting, the need for social contributions and self-employment regulations.
What costs do I incur by using the umbrella company?
Typically, an umbrella company charges a percentage of the contract. In this case, you will want to know the fee and if there are any charges or add-ons for other services. The contractor or the client can decide to pay this fee or it may be divided equally between the two.
How are their services delivered to help contractors?
The way an umbrella company delivers services will make a difference to the overall experience, such as if they use a dedicated account manager or only use an online portal. There should also be a reliable contact method if you need direct assistance.
How can we help you?
If you have been recruited by a foreign client and want to work inside the country, Contractor Taxation can help you find the most suitable umbrella company for your situation. We have a global network of fully vetted umbrella companies that are ready to take care of all the contracting details and compliance obligations. This will ensure that you can focus right away on working with your client.
If you are ready to take your contracting abroad to the next level, please contact us so we can explain how an umbrella company will work in your destination country.