Exciting new cultures, strange languages, exotic food and endless sunshine (or snowscapes). You can have it all. These are just some of the qualities of working abroad. But how to work abroad?
One of my readers, Harry, contacted me with great enthusiasm about how to work abroad and what sort of skills are required.
I also noticed a bunch of folk on Reddit, enquiring about the same thing. So, it made sense to write a post on this very subject.
Who Exactly Can Work Abroad?
Anyone can work overseas if the heart really desires it. However, this post is targetted for the talent economy i.e. highly skilled workers, consultants, contractors etc. Because that’s where my core expertise and knowledge lies.
Anyone from the PAYE sector can climb the
greasy pole ranks and be seconded to work for their sister company abroad (given the right training under their belt and having enough experience built up).
From the contracting angle, anyone from the finance, engineering or the IT sector have a strong chance of picking up projects overseas. And if you’re not a contractor yet, maybe you want to check this out.
Why Work Abroad?
Apart from how to work abroad, you first have to ask yourself why you want to work abroad.
A jolly is perfectly understandable in the short term, however, take time to mull over these points below:
- Is it the niche experience you’ll gather from the role
- The status working for a blue chip client
- The hourly rate (package)
- Or an exotic location?
Because it’s unlikely you’ll acquire all these key attributes.
Ask yourself this question, as choosing one or two of these will bring focus. And with focus, you can achieve your end goal.
For me, I’ve always been motivated by different cultures and lifestyles.
The money does help, even though it can’t just be about the money. For fast tracking purposes, it helps propel me to greater saving rates and enables me to invest more in a shorter space of time.
How to Work Abroad
Whenever I use examples, it’s because I’ve experience working and living there (or at least know other good colleagues that have been there and done that).
Also, I’m a British Citizen/ contractor who’s been working abroad for years, so I should be able to point you in the right direction.
Note: Let’s use sunny Germany/ a software engineer role as an example (I’ll throw in some extra countries also). Please note, I’m not a qualified accountant or tax expert. Although, I’ve had an accountant on speed dial since 2004.
Option 1 is to get a secondment overseas with your employer’s sister company. Or, if you’re working for a consultancy, you could opt for a project overseas with one of their clients. That’s Option 2.
From experience, you would require at least two years on the job training/ experience to take advantage of these scenarios.
The length of your stay overseas is key.
Taxes and Pension Short Term (6 months or less)
For instance, if you were to experience a few months in Germany, you wouldn’t be considered a resident of Germany (as you will have worked less than 183 days) Hence, you still pay your UK taxes and keep paying into your UK pension.
Taxes and Pension Long Term
If you were to get a long spell in Germany (i.e. a secondment), your company should pay the difference in taxes (tax equalization).
“Tax equalization is presumably in place to encourage expatriates to work for their employers wherever they may be sent, sure in the knowledge that they are not disadvantaged tax-wise and their tax affairs are taken care of by the company’s appointed tax advisers…”
Otherwise, you would end up paying German taxes that are somewhat higher than the UK.
As of 2017, incomes in Germany up to €54,058 for a single person (€108,116 for a couple) are taxed with a rate progressively increasing from 14% to 42%. Incomes from €54,058 (€108,116) up to €256,304 (€512,608) are taxed at 42%.
In summary, no need to pay extra taxes and keep paying into your UK pension. Hence, no need to join the German system for Option 2.
There is Option 3. Where you join a German company directly. This is when you would have to start a German/ foreign pension and pay German taxes.
You would get a letter from the town hall and register for tax.
But…I think Options 1 and 2 are far better, for the reasons below:
For example, if you’ve joined a half decent software development company in the UK, you should receive the perks below, for working overseas:
- Uplift in salary
- Accommodation and bills paid for
- Subsistence/ Daily Allowance
- Flights back to the UK on a frequent basis
- Tax equalization
Hence, the extra savings by choosing Options 1 and 2 can be put back into your UK employer’s pension scheme.
As a side note, the UK is surprisingly friendly to investors compared to most places. I’ve done a lot of digging over the last few years, re-transferring pensions/ opening brokerage accounts overseas. At the end of the day, there are so many tax advantages with the UK set up, especially for pensions.
Even if you move permanently to Europe (and your pension pot is in the UK), there are no transfer fees. It’s only when you transfer your pension to a non-EU jurisdiction, things get messy i.e. a 25% charge from the HMRC.
Keeping your pension in the UK and residing in the EU seems to be the best balance.
But if you have a burning desire to reside in South America, Asia and, the likes…who am I to talk. Go for it.
Self Employed Route
There is always Option number 4. Go contract
This is where you set up a UK Ltd company (or wherever you are based) and source software development projects via agencies.
You will more than likely enhance your rate, minimize your taxes and have the opportunity to set up a SIPP (Self Invested Personal Pension) in the UK. Depending on your experience, you could take advantage of overseas projects where you can maximize your earnings again.
Again, and in general, you should only have to pay UK (or your home country’s) taxes (i.e. no additional foreign tax) whilst contracting overseas for the short term i.e. less than 183 days. You can still avoid foreign tax beyond 183 days, but it’s best to speak to your accountant/ agent about that.
Some EU countries tax years reset in January, some don’t. Re the UK, it’s how many midnights you’re in the country that counts. Again, some other EU countries are different i.e. our example Germany.
For example, you can do business in Germany from June to Xmas (in the 183-day bracket). Then come back after Xmas, and do more business until the end of June (in the 183-day bracket).
However, say you took a month’s break outside Germany, in between your 183-day tenure, you still have to leave after 183 days.
Beyond 183 Days
You can risk it and stay beyond the 183 days, however, it’s a game of Russian Roulette.
If your client happens to get audited and they find you’ve done business there, you will be investigated.
That scenario played out exactly in the Netherlands and the client got burnt.
And you really don’t want a ‘knock on the door’.
Hence, there are certain countries where you can’t avoid overseas tax. Even if you stay for less than 183 days. Switzerland and Netherlands (for the obvious reasons above) are typical examples. This is where it’s mandatory to sign onto their social security system; hence you can’t take advantage of your own Ltd Company.
Then I ask myself the question, why would I want to pay tax on their roads, schools, churches and the likes for the short term?
To a certain extent, it also depends on the client and agency you go through. Even clients in the Netherlands will accept Ltd companies (i.e. you don’t have to sign up to the social security system) in rare circumstances.
Avoiding Double Taxes
I’ve managed to avoid double taxes so far and now (after several years) pay less tax than typical UK corporation/ income taxes. There are legal ways of minimizing taxes IF living most of the time outside the UK/ your home country…and this is another post on its own.
If you’re from the UK/ EU and opt to work in the EU, you’re always going to be under scrutiny. Not necessarily a bad thing, you just need to work smart…
That’s where having a Ltd Company really protects you. You can abide by your own rules and pay your own taxes. If you operate under an umbrella company/ go, sole trader, you are more exposed and have to pay taxes in the client’s country, along with a heap of paperwork. And in the German example, more taxes and more admin/ handling fees than the UK.
Every Country is Different
Warren Buffet has a famous quote, “Never invest in a business you cannot understand.”
Well, I never do business in a country I don’t understand i.e. its tax system.
It all depends on the specific country you’re working/ contracting in, so please do your homework and sit down with your accountant. Read up on double tax treaties. I’ve heard contractors receiving brown envelopes from the HMRC after doing a foreign project (when they thought they were only paying overseas tax).
As I was saying above re the brown envelope, I’ve seen senior consultants banging their head against the desk. They paid tax in Switzerland, but they didn’t realize they had to pay tax in their home country also.
Working Further Afield
If you want to ‘fly under the radar’, you could opt for countries outside the EU. The Russian Federation, India, South Korea etc. The package is usually more favorable due to ‘unknowns’.
If I had to give one piece of advice, keep an open mind. The world is not as bad as it seems. If I had listened to the rumors or scaremongering in the media, I wouldn’t have had these amazing opportunities.
I signed on the dotted line for an interesting contract in the Russian Federation, when a full-blown conflict broke out between the Ukraine and Russia. I was working relatively close to the Ukrainian border at the time of the conflict, but I never heard a peep.
Again, I signed on the dotted line for another contract in Jerusalem, Israel, when rocket attacks made headlines.
I even made it to the North Korean border on my South Korean business trip. When Kim Jong-un was toying with his nuclear weapons.
Ironically, my most memorable projects were in Israel and Russia. I witnessed and experienced some incredible shit. And met some amazing people who I’m still friends with today. I’d never give that up for anything. Although the income/ package was generous, I consider it a bonus.
Agents – Things to Be Aware Of
Some agents will entice you into using their ‘solution’ for working on a project overseas. They will tell you it’s mandatory to pay the host countries taxes off the bat (for the first 183 days). It’s a bit of a scare tactic. Just one of many nuances with recruitment agents.
As a rule of thumb, I usually avoid this at all costs. For one, it may come back to bite you from a tax perspective.
And secondly, it will most likely cost you with regards to administration fees for running such set-ups. e.g for a certain project in North Africa, we were given ‘options’. These options are presented in a way that you are saving money, however, they usually involve a third party company who charge a hefty monthly fee and the agent banks a hefty commission.
Be adamant and use a business-to-business solution (B2B) with your agent if possible i.e. your Ltd Company.
It’s the recruiter’s job to give you advice when it comes to business visas. However, always check out the small print yourself. To be sure.
I know the post is titled, ‘how to work abroad’. But remember, you are there on business, not to work. The difference between the former and the latter is getting your visa revoked. It’s so important you state this (if asked) when you arrive at immigration, in your client’s country.
Because that’s what the business visa is for, business meetings and providing professional advice for your client. You want to give immigration that warm fuzzy feeling that you’re not going to steal local jobs, their women and settle down in their country.
And please don’t take it for granted you’ll always be issued with a multi-entry visa. Double check. The British passport isn’t some magical gateway to every country in the world. Most probably not after Brexit kicks in.
If you’re only entitled to single entry, then you’re unable to take advantage of all that awesome travel. What do I mean? Well, every time you leave your clients country you have to get a new visa issued. And that is costly and time-consuming.
Last but certainly not least, it’s probably a good time to get a second passport. This will definitely save you time and money in the long run.
What About Brexit?
There’s nothing concrete in place at the time of writing. It all depends on the relations between the UK and their EU counterpart.
I can only envisage more paperwork/ visas, slightly longer queues at immigration and a possible increase in single entry visas (as opposed to multiple-entry).
But let’s wait and see…
Cost of Living and Geographic Arbitrage
The last thing to take into consideration, in how to work abroad is cost of living. Or, digging a little deeper….geographical arbitrage.
I know off hand from working and living in Germany, the cost of living is fair. But it might cost you more in your client’s country. You have to take into consideration, the big three (living expenses). That’s accommodation, transportation (ground and air), and eating.
You need to weigh up your income (overseas package), against your living expenses.
The difference is how much you’re going to save and I always aim to save 50% or above to fast-track my way to FIRE.
Try not to get caught up in the romance of it all i.e. you’re there to make money. That pretty as a postcard country might look ideal in your head but what will your savings rate be?
Personally, I only opt for an overseas project if it nets at least 1.5 x more than the UK. If it doesn’t, then maybe it’s better to go there on holiday…not business.
Finally on this note, if you have a wad of foreign notes leftover, I advise against changing them at the airport. There are better ways of ensuring you buy back currency at a better rate.
Advantages of Working Abroad
That life balance does generally exist on the Mainland European projects (not necessarily in Asia though). Folks tend to clock off early to be with their families and pursue activities.
On the flip side, the budget is there if you want it (some clients more than others). I was always capped at 37.5-40 hours with UK projects. If you’re aiming to fast-track your way towards financial independence, 40 hours doesn’t cut the mustard. Hence, you can grab overtime if you want it. If you’re lucky, time and a half on Saturdays and double time on Sundays.
IR35 is another reason to contract overseas. It’s never cut and dried with this tax legislation overhanging you. After a brief spell down South, IR35 never became part of my vocabulary again.
If you trade with your UK Ltd company overseas, IR35 isn’t applicable. On the same note, you will become zero-rated for VAT purposes, by working with an overseas client. Even if you use a UK agency.
With UK/ Eire projects, local contractors tend to protect their ‘patch’. Local consultants or contractors like to ‘get in bed’ with the client.
They usually feel threatened when you appear on the scene and it can sometimes feel clique. You rarely experience that by working abroad, because everyone is in the same boat.
Hourly Rates, Taxes and Expenses
Take into consideration the cost of living in your clients country, it can make or break a contract. You should be presented with one of three types of rate/ package:
1. An ‘all in rate’ (where you cover expenses)
2. Flat rate and expenses paid by client.
3. Day rate
If I was working at a relatively low cost of living country, I would prefer option 1. However, for a more expensive country, option 2 is more preferable.
For instance, a good colleague of mine secured an all in rate in Denmark. He wasn’t allowed to use his Ltd Company so lost circa 17% in taxes straight away (compared with UK corp tax). With the taxes and painfully high expenses, he was losing around half his hourly rate.
Another example is Germany, where a flat rate and expenses were paid. Some contractors were forced to join the German system, as they didn’t operate through a Ltd company. Hence they paid circa 30% in German taxes and costly monthly fees to a 3rd party for administration.
As I have a Ltd company, I went B2B with the agent. I would be happy to save 11% i.e. 30% German versus 19% UK Corporation. But I save even more now after years of due diligence. That will be a separate post on its own. I also reimburse accommodation, food, ground transportation and flights.
Hence, the German project is more favorable than the Danish one.
I generally stay away from day rates. This is where your hours are capped i.e. if you work over a certain period of time, the agent would bank your overtime instead of you.
Work Abroad Agency
There are more recruiters than ever before, due to the sheer demand for talented consultants and contractors. I’ve listed a couple of agencies below, that specialize in working abroad for the IT and Engineering sectors:
1. Tek Systems
A leading provider of IT staffing and IT services. Every year they deploy over 80,000 IT professionals at 6,000 client sites across North America, Europe, and Asia.
With a focus on life sciences in Europe and more than 230 offices in Europe, North America and the Asia Pacific. Every year over 12,000 life sciences candidates choose Aerotek to facilitate their next career move with more than 1,500 clients.
If you plan to live an international life, you will also need an international accountant.
Perform due diligence on your contract and your clients country to minimize any surprises.
There is generally no paperwork involved when operating via your Ltd Company in Europe (pre-Brexit) and only a little paperwork when operating outside of the EU with your Ltd Company.
When you start to introduce 3rd parties, you start to incur more fees and you lose control.
Not everything is black and white, so sit down with your accountant, do your calculations and you’ll reap the wonderful benefits.
Now I would like to hear from you in the comments
What countries have you experienced working/ doing business in?
What key takeaways can you share with us?