Expanding into the world of overseas contract placements can be an easy way of increasing an agency’s turnover and profitability if they can identify a client requirement within their market. Many of the recruitment processes are the same when making international placements except the profit margins are often much larger which makes this very appealing for a recruitment agency. However, there are certain things you need to know when making contract placements overseas and must be discussed before engaging an international client. Let’s unpack the top 5 hazards of international contract placements:
FUNDING FROM AN INVOICE FINANCE COMPANY
When making contract placements in the UK and Internationally, there is always a funding requirement to pay the candidate before the client makes payment. Whereas UK invoice finance companies are happy to fund UK companies, not all providers can provide currency funding or fund every country. When looking to place candidates overseas, we strongly advise asking the invoice finance provider what currencies they can fund and if there are any restrictions on countries or export concentration limits. If the current provider cannot provide the required currency or country funding then it may be best to look for a provider who can.
WITHHOLDING TAXES
Some countries will restrict funds that leave a country by imposing a withholding tax that will be deducted before the funds are sent. This depends on the country and, in most cases, there are treaties between the countries to avoid or reduce the withholding taxes from being taken called Double Taxation Agreements. This is often done by completing forms or getting HMRC to supply a Certificate of Residence for the recruitment agency. It is advisable to investigate if there are any withholding taxes and if they can be mitigated before making placements as the process can take several weeks to complete.
APPRECIATE TIMEZONES, NATIONAL HOLIDAYS AND BANKING DELAYS
When working with overseas clients, not all clients are in the same time zone as the UK which means video calls may need to be at different times of the day (or night) and emails may take longer to answer. Each country has different national holidays and festivals which may delay response times. Any payment being made to or from an overseas country will often take much longer to process and needs to be considered when receiving payments from clients or making payments to candidates.
CONTRACTOR TAX REGIMES WITHIN COUNTRY
Whereas the UK has IR35 legislation to ensure that candidates are paid correctly, every country also has their own rules and regulations when it comes to making payments to contractors. Some countries adopt the 183-day ruling, some will insist that candidates are paid under the country’s PAYE scheme whilst others will give allowances to overseas contractors working. It is best to consult with a payroll company with expertise in the country in question to ensure that your recruitment agency complies with the in-country rules to avoid any tax investigations or fines.
EXCHANGE RATE VOLATILITY
One of the most significant hazards of making international contract placements for a recruitment agency is the currency losses and gains on international placements. There are potential currency losses and gains on both the funds arriving from the client and the payment made to the candidate and during that period the exchange rates can fluctuate considerably. It is best to ensure that your recruitment agency has a bank account set up in the currency and is being funded by the invoice finance company in the currency and you’re charging the client and paying the candidate in the same currency to help reduce any currency losses that may occur.
HOW YOU CAN AVOID THE HAZARDS OF INTERNATIONAL CONTRACT PLACEMENTS?
Well, that’s easy – you just need to talk to us.
We have helped many recruitment agencies over the years who have made placements in various countries worldwide. MAYACHI has helped to ensure that the invoice finance provider can fund in the required currency, investigated and mitigated withholding taxes, advised on ways to reduce currency losses and provided guidance on the best way to pay the candidates compliantly.
