Fixed-fee or percentage-based? Added extras or just a basic service? There are a number of choices to make when it comes to comparing umbrella companies. One such choice is between a UK umbrella company or those based overseas.

Umbrella companies may be based in different countries for their own reasons. The question is: does it have any impact on you?

In this guide, we’ll discuss everything you need to know when it comes to overseas umbrella companies.

The temptation to go local

If you were choosing an accountant or a marketing agency, you might be tempted to go local. Why? In short, it would be easier to check-in with them and get a face-to-face meeting if anything goes wrong.

The truth is, this could be the same for your umbrella company. Whatever product you’re buying or service you’re using, a face-to-face meeting can help you get a better feel for the company you’re working with.

That said, overseas umbrella companies aren’t exactly what they say on the tin. Despite being based overseas, they usually have offices or branches in the UK.

Umbrella companies based overseas

So, what exactly does it mean for umbrella companies to be based overseas? In short, it means the company has been incorporated in another country. However, it’s also been registered in the UK so it can operate there.

Is this illegal? No. Companies can be based in one country but operate in several around the world. It simply means their accounts are based in that country, so their profits are taxed there.

In simple terms, being based overseas is a way to minimise their tax liability and maximise profits – a bit like using an umbrella company to maximise your take-home pay.

Overseas taxation – a brief overview

2019 saw the UK rate for corporation tax stand at 19%. Companies based in the UK pay 19% of their profits in tax, down from 28% in 2010, 35% in 1989 and 52% in 1982. Despite being lower than the global average of around 23%. Significantly lower than the likes of France (34.43%) and India (35%) – there are still a number of countries with lower corporate tax rates:

• Cyrpus, Ireland, Liechtenstein – 12.5%
• Macao, Moldova – 12%
• Andorra, Bonsia & Herzegovina, Bulgaria, Gibraltar, Kyrgyzstan, Macedonia, Nauru, Paraguary, Qatar, Timor-Leste, Kosovo – 10%
• Montenegro, Hungary – 9%
• Turkmenistan – 8%
• Uzbekistan – 7.5%

Also there are several countries with no income tax for corporations, such as Bermuda, or Guernsey closer to home. Needless to say, these countries attract a lot of corporations. Large and small, that want to maximise the amount of money they keep from their profits.

So, if you see an umbrella company that is based in Cyprus, you won’t have to learn Greek or Turkish to get in touch with them. It simply means their tax is processed abroad.

The same service for you

With all that in mind, the service you get from an overseas umbrella company will be the same as that you get from a UK-based company. They will still have a UK presence, so you won’t be charged extra for getting in touch with them.

Your overseas umbrella will process invoices, deduct fees and tax, and send you your take-home pay as usual. Despite their tax being processed abroad, you will still be subject to pay-as-you-earn tax rules and national insurance contributions in the UK.

UK contractors working overseas

Another question when it comes to overseas umbrella companies is how they affect UK contractors working abroad. Are they a necessity? Or can you simply use a UK-based umbrella company?

Working abroad as a contractor is a complex issue. If you’re working for longer periods, exceeding a full tax year, then it’s possible to set up as a non-UK resident in the country you’re working. However, most contracts won’t be quite so long, which makes it less worthwhile.

Fortunately, working through an umbrella company makes things a lot simpler. Your client in another country can simply bill your umbrella company, who will deduct any taxation required. In some cases, this will include tax for both the UK and the country you’re working in.

Contractors working in the EU, while the UK is a member, are advised to get an A1 form from HMRC. This proves that you pay National Insurance in the UK and avoids any social security costs while working for short periods in the EU.

How do umbrella companies help?

Above all else, umbrella companies can help contractors working overseas with up-to-date knowledge and advice. Umbrella companies that operate in different countries will know about the tax rules in those countries, meaning they can advise on the best tax options for contractors.

Going it alone is never advisable, as you may end up being taxed in full by both countries. Even if you go through the lengthy process of claiming back that tax, it will leave you short of money in the meantime.

Comparing UK and overseas umbrella companies

When you’re comparing umbrella companies, it doesn’t really matter whether they’re based abroad or overseas. What’s important is the service they provide to you as a contractor, including:

• Fees – How much will they take out of your invoices? Will it be a fixed fee or a percentage of each invoice?
• Payment terms – Will they pay you monthly or weekly?
• Insurance – Do they provide insurance like public liability or professional indemnity?
• Added extras – Some umbrella companies offer discount schemes to employees, which can help you make your money go further.
• History and experience – Naturally, you want a company that has plenty of experience and positive reviews for that added trust factor.