The Top 5 Hazards of International Contract Placements
Contractor placements with companies and businesses overseas are on the rise, with agencies looking to capitalise on strong economies around the world.
As UK recruitment agencies have access to skilled candidates who can often outperform the locals in sectors including IT, telecoms, engineering and the energy market, they are filling highly skilled roles where other countries might have difficulty.
Due to the rare skill sets being sought after coupled with candidates being required to relocate, charge rates can be significantly higher than the average and the temptation to take advantage of that can be strong.
There are some major hazards to overcome, however, if you want your placements to stay profitable. So what should you watch for?
Exchange Rate Issues
Usually, invoices raised outside the UK will be in another currency. The right time to convert those funds can return a higher investment, but at the same time, invoicing in another currency and receiving payments won’t always happen at the perfect time. We recommend charging the client and paying the candidate in the same currency in order to cut currency losses, but it’s also important to watch for exchange differences to avoid losing more money while you balance the books.
Invoice Finance Support
When financing contractor placement with invoice finance companies, it’s vital you confirm ahead of time that they can fund to the country in question and work with the appropriate currency. Even if they can, it may take time to get this sanctioned, and another bank account and ledger may have to be created – also taking up time. Keep an eye on export concentration limits, and don’t forget to consider the costs of running an export funding facility.
Timezones, National Holidays, And Process Delays
Working with companies operating on a different timezone can create an extra lag in raising invoices and processing payments that you have to take into account, especially given settlement terms of invoice finance arrangements, etc. An unexpected national holiday could mean an extra day’s charges – or more, if you also lose a day to timezone lag. Have a plan in place for contact points and even language barriers from the start.
Taxation Across Borders
In UK placements you’ll typically either pay the contractor PAYE or through a limited/umbrella company. When the contractor works abroad, however, the situation may be very different. Understanding the factors which govern where the contractor is tax resident, where they should be paying taxes, and how to stay compliant is essential. Failing to do this could cause repercussions on the agency or client, among others.
It’s always important to check for any potential withholding taxes which can be taken as the client makes payment. Double taxation agreements between countries can remove these withholding taxes – for example Mexico deducts 25% from any payment of an invoice, but if the UK company obtains a Certificate of Residence from HMRC, this tax is not applicable. These certificates can take up to 6 weeks per certificate, so you will want to apply for these, where appropriate, as soon as the placement is made.
TBOS can 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.