Freelancers' Questions: How to keep my UK clients but live in Italy?
Freelancer's Question: I need some tax and residency advice about a
move to Italy that I’d like to make in August. But as I understand it, I might
be able to get away with not changing anything for six months as that is when I
will become an 'official' resident.
I’m a creative industry freelancer currently in the UK and have been running my own limited company (which is VAT registered) in the UK for around 10 months. I’m a one-man band with a few nice UK clients who want to keep me on.
How do I keep these clients if I want to move to Italy? Can I keep my ‘Ltd’ and invoice these UK clients in GBP(as I do now), rather than making clients bill a new Italian company which I suppose I’d have to set up? If I do set up an Italian company, can its only client be my UK company and then I’d just invoice the UK company every quarter and pay tax on that amount in Italy? Or can I just pay corporation tax in the UK and just personal tax in Italy?
Having a simple arrangement is more important to me than having a tax-efficient one. So I want the set-up to be legal and easy for me and my clients; the costs are secondary but of course I don’t fancy being taxed twice!Expert’s Answer: Your question raises a few interesting points: the 183-day rule; company establishment and tax residency. I will cover these in more detail while responding to your query. I will assume that the work you are doing for your UK-based clients is going to be completed entirely remotely from Italy.
The primary consideration, to understand where tax is due first, is to establish where the income is earned – this is typically the physical location where the work is being done. When freelancing or contracting abroad, this means that you need to have a means by which income tax can be paid to the authorities in your country of work. By continuing to channel your income through your UK Limited company, you will be remitting tax in the UK, not in the country where you are working. Although your tax affairs in the UK will be in order under this type of arrangement, a tax liability will build up in the country of work.
While an employee of a UK company would benefit from a 183-day grace period before becoming taxable locally, the 183-day rule does not apply in situations where a one-man limited company is the employer. Freelance contractors operating through UK Limited companies outside the UK are running the risk of being liable not only for unpaid personal income tax in the country of work, but also for local corporation tax, having created a permanent establishment in the country where they are working.
In your situation, the best option would likely be to set up an Italian company and invoice your clients directly through this entity, thereby ensuring tax is being managed correctly with the Italian authorities. A good local accountant will be able to provide further assistance and advice with regard to set-up and operation, and I would strongly advise that you seek this type of specialist advice before making your move.
Alternatively but possibly less practical where multiple clients/contracts are involved, you could consider the use of a local umbrella company who would manage the tax payments on your behalf with the Italian authorities in the same manner as an employer would do with a regular employee.
Regarding double taxation, it is worth considering that you will remain liable for UK tax for as long as you are considered tax resident. Becoming a non tax resident in the UK normally entails completing a P85 when departing, cutting all ties to and leaving the UK permanently for a complete tax year (6th April to 5th April), spending less than 183 days in the UK during the tax year, and limiting your visits to the UK so as to not exceed an average of 91 midnights or more per tax year over a maximum of four years.
With this in mind it is important to understand that there may be a personal tax liability in the UK even after relocating to a new country, and you should take advice on tax residency in the UK prior to moving to ensure you know where you stand.
To sum up, I suspect that you will find that setting up your own entity in Italy will prove to be the most advantageous, flexible and simplistic approach and I would encourage further investigation and conversation with a qualified local accountant on this topic to consider all aspects of your personal circumstances. Good luck!
The expert was Steve Blow of Capital Consulting , a leading advisory to UK freelancers working overseas.
23rd April 2015