The UK Limited Company

The most popular way for British contractors to operate overseas contracts is through their own UK limited company, known as a PSC (Personal Service Company).   This is understandable as UK recruitment agencies are practically forced by UK legislation to pay incorporated entities. So the starting point for many contractors is to use their existing PSC, if their agency allows this, particularly where a short term contract is initially on offer.

Risk
Either immediately or after 183 days (where there is a Double Tax Treaty), the PSC can be deemed to have a permanent establishment in the host country because that is where its centre of economic interest lays and where its management is based.

Outcome
The PSC becomes liable for host country corporation tax – often far greater than in the UK!  Additionally, if your contractor chooses not to meet his or her personal obligations in the country of work, this situation could be uncovered during a standard external (statutory) or internal audit at your client. This will expose your contractor to back tax payments and heavy penalties.  Your client is likely to presume you, its agency, have failed to meet your contractual obligations to maintain control over your contractor regarding tax.