Starting a new business? Get 40% off our accountancy services for 3 months! 😀

x

With the world shrinking and more people becoming global citizens, it is easy to find yourself paying tax in more than one country. So, what happens if this affects you? There are a lot of examples where a person or a company might work in one tax jurisdiction and yet be a resident of another.

Cross-border commuters may have temporary or permanent work in another country, and some digital nomads live and work around the world. For many people, cross-border taxation is a very real issue.

Am I domiciled or working?

The starting point when we are looking at double taxation is to consider the status of the person who is being taxed. People can end up paying tax twice if they:

International taxation often depends on what your tax status is, and always depends upon the countries involved. Whilst you may work in one country, it’s entirely possible that you might be ‘domiciled’ in another for tax purposes. Tax residency is important because it governs where you pay tax, and how much it will be.

 

In the UK you are automatically tax resident if… You’re automatically non-resident if either…
You spent 183 days or more in the UK, in the tax year. You spent fewer than 16 days in the UK (or 46 days, if you have not been classed as a UK resident for the previous 3 tax years).
Your only home was in the UK, which you must have owned, rented, or lived in for at least 91 days in total, and you spent at least 30 days there in the tax year. You work abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK, of which no more than 30 were spent working.
You Automatic Tax Resident Status

What is a double taxation agreement?

Countries use double taxation agreements to ensure their people don’t end up paying tax twice on the same money.

The aim of most of these agreements is to ensure that a person contributes to the place they work (or where the money is generated). They also ensure that a person can’t avoid tax by opting to be taxed in another country.

Each agreement is individual, and the UK has different agreements with separate countries rather than just applying a blanket approach. Unfortunately, this means that getting to grips with tax treaties can be complex in terms of the countries they apply to, but also the nuances of each agreement.

How to approach double taxation

The approach taken to double taxation is based on a number of things. To start with, the rules vary depending on whether you are a private individual, a company, a partnership, or a charity.

The rules can also be different depending upon whether your income is from employment, dividends, or royalties, among other things. To really complicate things, even your occupation can change the rules. For instance, if you are an entertainer, sportsperson, or student, then the tax rules may be different.

In short, if you’re wondering how much you’ll be taxed, – it depends! You can find an A-Z list of the UK’s tax treaties online. To explain further, let’s look at some practical examples.

The temporary cross border worker

We have to be careful here, as the rules are different depending upon which country you are working in, and (often) the tax status of the company you are working for.

In general, workers who carry out their job overseas for periods of less than 60 days are taxed in their country of origin.

This makes sense, especially where someone goes overseas to carry out a simple task for just a few days, and will never return there after that. Imagine setting up a tax account in each country in those circumstances! It would be inordinately bureaucratic.

The permanent cross border worker

Typically, a person who works in a different tax jurisdiction will pay tax according to the rules where they work. For example, a UK worker who travels to Ireland to work, and does so for more than 60 days, will pay tax and Pay Related Social Insurance (PRSI) in Ireland.

In the normal course of things, they would then have to pay UK income tax on the money they bring back into the country. But, because there is a double taxation agreement, they will receive a credit for any tax that has already been paid. This depends upon them being domiciled in the UK for tax purposes.

This means that if someone works in an area where tax is lower than the UK, they will pay part of their tax in the country of work (at the tax rate in that country), and then the rest in the UK.

 

Comprehensive tax return services

From only £24.50 per month

Learn more

The non-resident director of an Irish incorporated company

This person lives and works in the UK, but is a director of a limited or public company in Ireland. They get paid a director’s fee for holding the office.

They will have to pay tax and PRSI on the income in Ireland, even if they never actually visit. But again, they will be able to obtain a credit against their UK tax bill.

The person who lives in the UK but is non-domiciled for tax purposes

The domicile of a person can be decided by reference to the place that their father considered home when the person was born. If they choose to be a non-domiciled UK resident, then special tax rules will apply.

In this case, if you have foreign income you can choose to be taxed using the remittance basis. In other words, only when the money comes into the country. This may mean that tax will have to be paid in the country of origin depending upon their tax laws. It’s also important to note that they have to pay a remittance charge, so it can be costly.

Alternatively, they could choose to be taxed on the arising basis. This is where tax is paid in the UK as the income is earned, wherever it is earned.

Double taxation agreements and you

The obvious question that most people will be asking at this point is what the tax situation is in their specific case. The problem is that double taxation agreements are so varied, across so many different countries, that it is genuinely impossible to say without assessing it on an individual basis!

The safest approach is to take qualified, experienced advice, and be aware of the decisions you might need to make before you start working abroad. Learn more about our online accounting services, call 020 3355 4047 for a chat, or get an instant online quote.

About The Author

Dean Salmon

I'm an AAT and ACA qualified Chartered Accountant with over 13 years experience working with businesses, contractors and sole traders. I also love watching live music, and quizzes! Learn more about Dean.

More posts by this author
guest
0 Comments
Inline Feedbacks
View all comments

Read more posts...

Umbrella Companies for Self-Employed Contractors

When you set up in business as a contractor you might either work as a sole trader or as a limited company….

Read More

Get Ready for Small Business Saturday UK 2022

Small Business Saturday started in the US in 2010, on the first Saturday following Thanksgiving. It aims to encourage shoppers to consider…

Read More

Architects and Tax

Architecture is a highly diverse sector when it comes to tax. It’s partly down to the type of businesses that carry out…

Read More
Back to Blog...

Confirm Transactions

The number of monthly transactions you have entered based on your turnover seem high. A transaction is one bookkeeping entry such as a sale, purchase, payment or receipt. Are you sure this is correct?

Yes, submit my quote
No, let me change it

Please contact our sales team if you’re unsure

VAT Returns

It is unlikely you will need this service, unless you are voluntarily registered for VAT.

Are you sure this is correct?

Yes, the business is VAT registered
No, let me change it

Call us on 020 3355 4047 if you’re not sure.

Bookkeeping

You only need this service if you want us to complete the bookkeeping on your behalf.

Would you prefer to complete your own bookkeeping?

Yes
No

Call us on 020 3355 4047 if you’re not sure.