5 Pitfalls With Making International Contract Placements
Making contractor placements overseas is rapidly on the rise and recruitment agencies who are making placements outside of the UK are experiencing larger profit margins. Most countries are finding that there is a skill shortage of local candidates in various sectors such as IT, telecoms, engineering and energy markets so UK recruitment agencies are offering highly qualified staff who are willing to relocate to fulfil these roles. Due to the skill set offered and the relocation of the candidate often the rates paid by the client are significantly higher which can be very lucrative for the agency.
However, when making international placements there are a number of obstacles that need to be addressed which can have an effect on the profitability. Here are 5 that we believe you should be aware of:-
- CURRENCY EXCHANGE LOSSES
When invoicing outside of the UK often the placement will be in currency. As when you get your holiday money you have to consider the exchange rates of when you convert your funds, the same has to be done for invoicing and payments in currency. It is always advisable to charge the client and pay the candidate in the same currency to reduce any currency losses on the placements but you also have to consider the exchange differences on when the funds are received and when you convert the profit back into sterling.
- INVOICE FINANCE FUNDING
If you are financing the contractor placement through an invoice finance company you will need to make them aware of the country and currency being invoiced to ensure they can fund that particular country and also provide the funding in the currency. This may take some time to get this sanctioned by credit and an additional bank account and ledger may also need to be set up which can take time. You will also need to be aware of export concentration limits and the additional costs of running an export funding facility.
- LANGUAGE AND TIMEZONES
Although language may not be an issue when making the placement with the hiring manager it may be that the accounts department may not be as forthcoming. Being aware of any payment and process delays caused by language barriers and speaking to people at the right times due to timezone differences needs to be addressed at the beginning of the placement.
- CONTRACTOR PAYROLL AND TAXATION
When paying a contractor in the UK it is fairly standard to either pay the contractor PAYE or through a limited/umbrella company. However, when the contractor works abroad there are a number of factors which need to be taken into account to decide on where they are tax resident, where they should be paying taxes and the methods they can use to remain compliant. Having an understanding of the rules for paying contractors in that country is important to avoid any repercussions back on the agency or the client and to ensure that the candidate pays the correct taxes.
- WITHHOLDING TAX AND CERTIFICATE OF RESIDENCE
When making an overseas placement it is important to seeing if there are any potential withholding taxes that could be taken when the client makes payment and if there is a double taxation agreement to remove these withholding taxes. An example is that Mexico will deduct a withholding tax of 25% from any payment of an invoice but if the UK company applies for a Certificate of Residence from HMRC then this tax is not applicable. Applying for a Certificate of Residence for each client in each country can take up to 6 weeks per certificate so you need to apply for these as soon as the placement is made.
TBOS has helped many agencies to facilitate and administer contract placements in many countries worldwide. Using our experience and knowledge we can advise agencies on how to mitigate and reduce any unnecessary risks on their overseas contract placements. We can also provide funding on these placements either through our TBOS Freedom model (which can fund over 175 countries in 15 different currencies) or by helping to set up their own invoice finance arrangements with our panel of invoice finance providers.